While there are other companies in the field of FinTech offering purely loans to SME businesses, Square is the second electronic payments company that combines these two services.
Square is listed in New York Stock Exchange since last November with a share price of around $13, a value below the $16 that had caught in the latest funding in 2014 from investment funds.
The loans will be offered in collaboration with the Celtic Bank of Utah and the model to be followed is a commission of 10% to 16% of the loan amount. The loans must be repaid within 18 months and could be repaid sooner.
Square must pay the loans to the bank, holding a percentage of its revenues, which raises several risk and profitability issues since Square is not a bank which has large cash reserves.
Square already facilitated cash advance payments to businesses in need. Specifically the company gave $400 million in Cash Advance in 2015 with revenues from that offering accounted 5% of Square’s total revenues, $1.3 billion in 2015.
Apart from the Square PayPal gave $1 billion in loans to SMEs in 2015, which use PayPal as an e-payment method.