Square Capital Review: Merchant Cash Advances by Another Name

You already use Square to accept payments. Should you use it for business loans?

Best for Square Customers
out of overall
Flexible requirements
Simple repayment
High APR
Last Updated: Less than 6 months
Have you heard of the Paycheck Protection Program? This program is part of the recently passed $2.2 trillion stimulus package and is meant to provide relief for small businesses that need extra cash to cover payroll.

The program offers loans up to $10 million to small businesses. These loans are calculated using 250% of your average monthly payroll in 2019. The program is only being offered through SBA authorized lenders.

These loans are eligible to be forgiven if at least 75% of the funding is used to pay workers and if no worker is compensated above $100,000. It’s currently not clear if that maximum includes benefits. Those who can’t get the loan forgiven will have to pay it back in two years at a 0.5% interest rate after six months of interest deferment.

Applications open on Friday, April 3, and close on June 30. The application consists of a two-page form in addition to required documentation.

If you’re interested, be sure to apply at a Paycheck Protection Program authorized lender.
Less than 6 months
Concerned about how to recover from the effect COVID-19 has had on your business and its finances? Well, you might qualify for special disaster loans from the U.S. Small Business Administration (SBA). Businesses can get loans up to $2 million, and these loans have an interest cap of 3.75%. The SBA website has more information.
More than 6 months
We made some tweaks to keep our Square Review up to date. There were two changes worth noting: First, Square Capital now offers larger loans, with amounts up to $250,000. Second, Square Capital has a new competitor, Stripe Capital. We added a little information about how the two compare.

If you’re a Square user who’s been offered a Square Capital loan, you might have a few questions.

Like, if it looks like a merchant cash advance, smells like a merchant cash advance, and operates like a merchant cash advance, is Square Capital’s business loan still a merchant cash advance?

And more importantly, do Square Capital’s loans have the same benefits and drawbacks as traditional merchant cash advances, or is there more to consider?
Get the answers in our review below.

Square Capital provides loans for businesses using Square’s card reader

First things first: you don’t choose Square Capital—it chooses you.

To use Square Capital, you must actively use Square’s merchant services (it’s our pick for the best mobile credit card reader). If Square likes what it sees in you—or at least, in your credit card sales—it will extend you a loan offer on your Square dashboard. If you don’t have an offer there, you simply cannot get a Square loan. Not yet, anyway.

Best Merchant Cash Advance Companies

Square doesn’t reveal exactly how it determines your eligibility for a Square Capital offer, but it does look at the following from your Square history:

  • Your processing volume
  • How recently you’ve used Square
  • Your ratio of new and returning customers
  • The number of chargebacks you’ve had
  • The growth of your business
  • Your overall activity level and history

Notice you see nothing about credit scores, tax returns, or bank statements. That means that, unlike our top choices for the best business loans, you can get business loans through Square without great credit.

But getting an offer from Square Capital is just the first step of the funding process.

The Square Capital funding process

So Square puts a loan offer on your dashboard. Now what?

Your offer should show you how much you’ve been approved to borrow. You should even be able to choose various amounts (up to your maximum) and see corresponding rates, fees, and estimated repayment terms.

If you like what you see, you can choose to accept your loan offer. Square may ask you for some documents at this point—stuff to prove your identity and your business’s identity.

Once you’ve finished your application, Square Capital should officially approve your loan request in one to three days. After that, Square deposits your funds into your bank account within another one to three days.

What kind of funds, you ask?

  • Flexible application requirements
  • No required collateral
  • Sales-based repayment
  • Offers only for Square users
  • High APRs
  • Poor customer service

Don’t qualify for a business loan? Get a personal loan instead.

Square Capital’s small-business funding

Square Capital offers one type of financing. And while Square calls it a loan, we’ll let you in on a secret: it’s definitely a merchant cash advance (MCA).

Like any merchant cash advance, Square’s loan gives you a lump sum of cash up front, which you repay by giving Square a predetermined percentage of your daily debit card and credit card sales. Your repayment amount includes that up-front amount plus set fees (rather than interest).

You can repay your loan early—and Square doesn’t charge early repayment fees—but there’s not much benefit to doing so. Because this model uses preset fees rather than interest, paying your loan off in advance won’t save you money.

Square Capital's small-business loans
Min loan amountMax loan amountTermFeesLearn more
$250,000Up to 18 months10%–16% of loan amountApply Now
Data effective 11/06/19. At publishing time, pricing is current but subject to change. Offers may not be available in all areas.

Regardless, you have up to 18 months to pay off your loan. Square Capital says it sets your repayment rate so you should automatically pay off your loan within one year. But if that doesn’t happen, at 18 months your loan will be due in full.

Note that Square Capital doesn’t advertise its retrieval rates (the percentage it takes from your credit card sales), but you will be able to see those rates in your loan offer.

You might like this merchant cash advance model because it offers great convenience: you don’t have to worry about making payments since Square automatically takes them from the sales you already make. And if you have slow sales one month, you’ll have lower payments thanks to the percentage-based repayment plan.

But you might dislike this model because, like pretty much all merchant cash advance companies, Square has been accused of charging high fees and trying to hide just how high they really are.

In fact, let’s take a closer look at those fees.

Square Capital fees and APR

Unlike traditional term loans, which charge interest on your loan amount, Square Capital charges a set fee on your loan. This fee won’t change over time; whether you pay off your loan in one day or one year, you’ll pay the exact same fee.

Square Capital doesn’t publish its fee rates, but Fortune reports those fees range from 10% to 16% of the loan amount.1 So a $10,000 loan could have fees ranging from $1,000 to $1,600.

Those rates are actually much lower than the fees of many merchant cash advance companies; MCAs usually have a factor rate of 1.2 to 1.5, or 20% to 50% of the loan. But the APR (annual percentage rate) on a Square loan will probably still come out higher than the APR on a traditional loan.

That’s because APR describes the cost of a loan over a year. Traditional term loans have multi-year terms, so interest and fees get spread over those lengthy terms. As a result, the yearly cost is cheaper. But for a Square Capital loan, those fees don’t get spread out as much with the loan’s shorter term, making the effective APR higher.

That doesn’t necessarily mean you shouldn’t use Square Capital. After all, it has plenty of advantages that can make up for the APR. You simply need to know how it compares to your other options.

Speaking of which . . .

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Square Capital vs. competitors

Now you know about Square Capital—but how does it fare when compared to some of its most popular competitors?

Square Capital vs. Kabbage

Unlike Square Capital, Kabbage offers a line of credit rather than merchant cash financing. However, both Square and Kabbage use nontraditional loan applications. In Kabbage’s case, you connect your bank account or accounting software to your Kabbage account and Kabbage’s algorithm determines your creditworthiness.

Likewise, Kabbage also uses predetermined fees rather than interest. But unlike Square Capital’s percentage-based payments, Kabbage requires set monthly payments.
Both offer convenience and accessibility—and high APRs. It mostly comes down to what kind of repayment you prefer.

Square Capital vs. PayPal loans vs. Stripe Capital

Square Capital, PayPal Working Capital, and Stripe Capital operate very similarly. All offer merchant cash advances with set fees and percentage-based repayment through their payment processing services.

Of course, in PayPal’s case, your merchant cash advance gets repaid through the PayPal payments you accept, rather than your Square credit card transactions. Likewise, Stripe Capital loans get repaid through Stripe credit card transactions. But the process works pretty much the same way, and fees look comparable between the three.

In this case, the better option depends on what kind of payments you get: if you use Square to accept most payments, you’ll obviously want Square Capital. But if you mostly use PayPal, PayPal Working Capital will work better. And if Stripe is your payment processor of choice, then go with Stripe Capital.

Square Capital vs. merchant cash advance companies

You’ll find plenty of other merchant cash advance companies out there. These will use the same model, letting you repay your loan through your credit card sales.

Again, most of these companies will have similar benefits and similar drawbacks, although Square Capital may have lower fees.

But if you already use Square to accept payments, Square Capital will offer greater convenience. If you don’t use Square, then you’re not eligible for Square Capital anyway, so you might as well use a different merchant cash advance company.

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FAQs about Square Capital

How can I make Square Capital give me an offer?

Put simply, you can’t. Asking nicely won’t help. But Square does promise to review your profile periodically, so if you ever become eligible, you will get an offer.
Until then, just keep using Square. The more you use it, the more likely you’ll become eligible for a Square Capital loan.

Can I get a second or third offer?

Yes, you can get multiple loans with Square Capital. Some customers report you’re most likely to get another offer when you’ve paid off about 60% to 80% of your current loan.

That being said, you’re not guaranteed to get another loan offer. Even if you’re a perfect loan customer, Square’s algorithm might decide that you don’t qualify anymore.

Take note—if you accept another offer while paying off your first loan, your second loan will pay off your first loan and give you the remaining balance. Keep that in mind as you look at an offer’s fees and rates.

How long does Square Capital’s approval process take?

After you accept an offer and upload any necessary documents, Square should approve your application in one to three days. After that, you should get funded in another one to three days. Altogether, the Square Capital process takes less than one week.

Does Square Capital require collateral?

Square Capital doesn’t ask for any kind of collateral for loans of $75,000 or less. With larger loans, Square will put a lien on your business assets.

Either way, Square Capital doesn’t require you to make a personal guarantee.

Will Square Capital affect my credit score?

The good news? Square Capital won’t affect your personal or business credit. Even if you apply and get denied, Square Capital has no negative effect on your credit score.

The bad news? Square Capital won’t affect your credit score. Even if you promptly pay off your loan, it won’t improve your personal credit score, and it can’t help with building business credit.

That’s because Square Capital doesn’t report to credit bureaus. And again, Square’s “loan” is just a glorified merchant cash advance. Those never get reported to credit bureaus.

So on the one hand, Square Capital can’t harm your credit; on the other hand, it can’t build your credit. Think of it as credit neutral.

The takeaway

Square Capital provides an ultra-convenient loan for businesses already using Square. From the simple application to the automatic repayment process, Square Capital makes it easy for Square customers to get valuable financing.

But that simplicity comes with the usual drawbacks of merchant cash advances—especially the high fees and high APR. And since Square Capital decides who it offers loan applications to, many businesses simply won’t have Square as a funding option.

If you’re one of the chosen, Square might offer a way to get your funding. Just make sure you understand your fees and repayment structure.

Not convinced Square Capital is right for you? Find a different easy-to-qualify-for loan on our list of the best small-business loans with no credit check.

At Business.org, our research is meant to offer general product and service recommendations. We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.


  1. Fortune, “Square Capital Has Loaned Over $1 Billion to Small Businesses