Square launches unique loan service for small businesses

Payments company Square will launch Square Loans in Australia, a loan service for small businesses providing quick and easy access to funds of up to $250,000 for existing users of Square.

Square does not charge interest on the loans but it will charge a fixed fee that will not change during the term of the loan. Merchants have up to 18 months to pay back the loans but repayments are based on a percentage of the merchant’s sales or revenue.

“What that means is when they are having a busy period, they will pay back more of the loan and when they are having a quiet period…they will pay back less,” head of industry and payments at Square Australia, Samina Hussain-Letch, said.

Loan decisions and amounts available to vendors are made using the information that Square has on sellers and guarantees for loans are not required for loans up to $75,000. There is no paperwork, and funds are usually made available on the next business day.

“Based on the thousands and thousands of data points we have on sellers we’re able to make a decision and offer a responsible decision on access to loans. Unlike traditional banks who require reams and reams of paper and also require personal guarantees,” Hussain-Letch said.

Square launched its payment service in Australia in 2016 and, based on Australia’s recovery from Covid, has chosen Australia as its first launch market for Square Loans outside of the US.

“It felt like the right timing for us in Australia with government stimulus payments drying up and we know that access to credit is really important for small businesses and is also very difficult. So that’s what we’re trying to solve for,” Hussain-Letch said.

Research commissioned by Square found that more than half of small businesses in Australia have been negatively impacted by Covid, with more than a quarter experiencing revenue losses of more than 50 per cent. It also found it that only one in four Australian small businesses have ever accessed any form of formal funding, such as a business bank loan, but two thirds have relied on private sources, such as personal credit cards or borrowing from family and friends.

Some smal businesses find it particularly hard to access capital, and while fees are very dependent on the history a vendor has with Square, Hussain-Letch stresses t they want to provide vendors a fair and affordable product, and their fees reflect that intention.

“It’s especially difficult for sellers under 40 to access capital and for women. So, what we’ve done is we’ve created a really simple and fair process to access capital,” she says.

“Absolutely this is about helping square sellers in providing a financial services product that will help them grow their business.”

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