Obtaining a small business loan is challenging for many startups. Not only is the application process a hassle, but with the economy still recovering, small business loans are challenging to obtain. In order to ease access to loans for small business owners, mobile payment processor Square is now offering an alternative to bank provided small business loans.
The mobile payment processors allows their customers access to application-free, bank-free loans that are paid back in an average of 10 months. The process is so quick and easy, that business owners can obtain a loan as soon as the next business day. Instead of requiring a down payment, Square keeps an increased percentage of monthly credit card transactions until the loan is paid back in full.
While access to Square small business loans is easier to achieve, it has a few downsides. Since the payment is an agreed upon percentage of credit card sales—the amount paid back can vary significantly from month to month. It is also higher when the volume of credit card transactions is higher. Since the vast majority of consumers pay with debt and credit cards, startups will generate less revenue when the potentially need it the most.
On the upside, the loan is paid back quickly, therefore not tying up money long-term. It also offers those who could benefit from even a few thousand dollars to get their business up and running and off the ground. Since the average loan is paid back in 10 months, Square decreases their likelihood of taking a loss on their loan, which is essential since it is a somewhat unsecure loan.