Payments company Square officially announced a cash advance program Wednesday that could help its existing merchants, and its own company, increase the money they make.
The program, called Square Capital, lets merchants borrow a lump sum from Square and pay it back through a set percentage of their sales over time. Unlike a loan from a bank, the money has no interest fee or set payment schedule. Square is only offering the program to select merchants, based on their sales history and other financial information.
Square said it's advanced "tens of millions" of dollars in this way to "thousands" of businesses since it started testing the program in the last year. Darren Scott, co-founder of California-based art and apparel store Zerofriends, said his company had looked at other funding options in the past, and recently starting looking again when Square offered its cash advance.
"We knew we had San Diego Comic Con coming up so we jumped on the opportunity with Square knowing we could always use more inventory," he wrote in an email.
As previous reports of this program pointed out, the merchant advance model gives Square another way to make money. Best known for the credit card swiper that plugs into mobile devices, the company launched in 2010. Although the company has generated a lot of buzz for disrupting the more complicated, and highly-regulated, credit card industry, Square is reportedly having money troubles, losing $100 million in 2013.
Square is hoping it can create some more buzz with its Capital program. Among the businesses it's spotlighted for the news is a New York coffee shop, Cafe Grumpy, which used its cash advances to add a sixth location and expand its roastery. Owner Caroline Bell said she was grateful to Square for making the process easy.
Unlike existing cash advance options, Square Capital has a cheaper fee than traditional cash advances, according to Square. Unlike a loan, there is no application process or paperwork because Square already knows a slice of a business' financials through its existing merchant service, Square Register. Additionally, merchants get the money quickly, sometimes the next day. Square will then take a cut from merchants' sales each day until the advance is paid off. It decides the percentage of its cut based on each merchant's financials.
Scott didn't want to say how much Square advanced his company, but said he saw his revenue from the Comic Con increase by 30 percent because of the advance. The store paid Square back in about seven months. The small company is now on its second advance, which it's using to test new types of apparel products, like backpacks, hats and women's clothing. Currently, it mainly sells T-shirts.
"Having the advance allowed us to do this knowing we did not need to turn a profit right away," Scott said.