Square recently announced the transition from their merchant cash advance (MCA) product to a more flexible loan product.
We wrote about Square’s MCA product when they first announced it back in 2014. We gave it a positive review because, unlike most merchant cash advance products which charge upwards of 70% APR, Square offered cash advances for about 25% APR. In other words, many merchant cash advance providers will provide you a cash advance with a payback of 1.25 – 1.5x what your advance amount was, whereas Square’s advances have about a 1.1x multiple.
It is unclear from Square’s post about their new loan product whether the price of the loans will come down to compete with other online term loan products, which tend to be much cheaper than merchant cash advances (around 7 – 30% APR) — although Square’s cash advance product already fell close (slightly above) this range.
Square does mention that the new flexible loan product features a new option to repay your loan early. According to Pymnts.com, the loan repayment will work like the cash advance repayment does now, where Square takes a percentage of all credit card transactions (average 10% per transaction) with a 10 – 16% fee.
Square will be working with Celtic Bank to issue the loans, and borrowers will still be evaluated based on the same data that Square currently has on businesses: merchant sales and cash flow.
Here’s how Square’s flexible loan product stacks up to other financing products in the space.
| Square loan product | Merchant Cash Advance | Online Term Loans | |
| General Requirements | Varies based on how well you meet requirements | $200 – $250,000 | $25,000 – $500,000 |
| Loan Amount |
|
must have a certain amount of monthly credit card sales |
|
| Interest Rates | 10 – 16% interest + fees | 15 – 150% APR | 7 – 30% APR |
| Repayment Terms | 18 month avg. | 3 – 12 months | 1 – 5 years |
| Turnaround time | 1+ days | 1 – 7 days | 2 – 14 days |
Square merchants who qualify are invited, and should check their Square account for more details.
Nav’s take: If you qualify, Square’s loan product seems to offer much better interest rates and repayment terms than a traditional merchant cash advance, and you can secure the money just as fast (if not faster). Although, if you’re a well-qualified business loan candidate (with strong personal and business credit scores and financials) and you don’t need immediate access to the cash, a term loan from a bank or online lender will likely be less expensive.
We are interested to see what Square merchants think about this new product. If you’ve taken on a Square cash advance in the past or have been qualified for Square’s new flexible loan product, please share your thoughts with the Nav community!
This article was originally written on April 4, 2016 and updated on November 1, 2016.
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