Square's next diversification play: Become the bank

Square's next diversification play: Become the bank

Summary: The Square Capital program is an alternative to traditional bank lending, aimed at giving businesses actively using Square's platform a cash advance.

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TOPICS: SMBs, E-Commerce
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(Image: Square)

In what could either be called a business identity crisis or another move on its mission for diversification, mobile payments startup Square launched a new small business offering Wednesday — and this time it's looking to lure cash-strapped up-and-comers. 

The Square Capital program is an alternative to traditional bank lending, aimed at giving businesses that are actively using Square's platform a cash advance to expand and grow, except there's no application process, lag in turnaround or expensive fees. 

Square said it's able to bypass the application process because of all the sales and card processing data it has on the businesses seeking a loan. Obviously, only businesses with promising and proven growth potential are handed over cash. 

In a nutshell, the program works like this: the Square customer sells a specific amount of their future card sales to Square in return for a lump sum payment, which the business receives as soon as the next day. Payments on the loan are made automatically as the business makes sales. The more money brought in, the higher the payment, and if sales are slow the payment amount drops. There is no set timeframe for repayment, but Square optimistically expects the process to take about 10 months. 

Square said it has completed a pilot program of Capital, having given "tens of millions of dollars in capital to thousands of Square businesses." Perhaps that explains why the company dished out about $110 million more in cash than it took in last year.

Still, it seems as though Square hopes Capital will be an additional revenue stream, as well as an enticing sell point for prospective customers. 

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Topics: SMBs, E-Commerce

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  • Not a bad idea

    This is one of the better strategies came out of Square lately. It could be very useful to small businesses that need short-term loans, which are difficult to obtain from banks and cost too much on credit cards. Square needs something to distinguish themselves other than an once unique credit card reader for the iOS devices.
    idealab