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Square Capital Loans and Process

Hello All,

 

My account was very near the 75% paid status, so I decided to manually make payments to lower my balance. Now I read this might have delayed my eligibility for my next loan, is this correct?

I was not offered another loan yet, but with sales doubled, I was most likely going to get it.  Do I really have to wait two more weeks to get approval?

If this is the case (manual payments no good), I could have just let my sales continue to pay off my loan and would be eligible in about a week or less.

Also, my last manual payment would not go through? But I can send the funds to my bank account.

 

Ron 

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Super Seller

yes paying the loan manually is a flag as that could be income from outside your business.  in most cases, it seems a couple weeks does get your account back in line.

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Thank you for the quick reply, but the payments I made were from credit card processing from you service, not outside funds. Money I could have sent to my bank account I paid down loan amount. That is not fair. 

 

Ron

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Super Seller

there isn't a way to know where the extra funds come from when paying extra towards a loan.  paying off early doesn't save any money on a Square capital loan as it is a fixed cost loan.

 

also, I am just a user of Square, not an employee, you are asking questions on a user support forum.

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Nothing is fair when it comes to square capital! I followed all “rules” paid back two loans, still no offer. It sort of just depends on their mood. If you ask for answers they will refer you to their generic 5 point answer. You can find that on every capital thread. Hope you get an offer soon! 

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Square

Hi @Shoreline! Thank you for your post! 

 

There is no penalty for early repayment of your loan or for making manual payments. We want to make sure that your account is evaluated with up to date information. In order to do this, offers are dynamic and during the period it takes for us to process your prepayment we will be unable to extend you a new offer. However, you will be evaluated for a new loan offer after the payment is confirmed. If you are eligible, you will be notified directly. Please let me know if you have any other questions!

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I understand that Square isn't a bank, and the Square Capital product is still so novel that the company must be working out how to manage and market it effectively. That must mean the internal criteria used for offers, which have never been transparent, are changing all the time. I can sort of understand why Square would not want to make that criteria too public.

Still, now that we're on our fourth Square Capital loan in three years, I feel like we deserve just a little bit more information so we can manage it properly. We like the product --- timed properly, it really helps with a seasonal business like ours -- and we want Square to make money so the product succeeds.

But we also don't want to take ourselves to the cleaners. Can someone from Square offer us just a little enlightenment?

It seems like the most natural way to assess the cost of the loan is to calculate the fee against time to derive an APR. I'm sure Square's actuaries do the same thing. Doing that, we realized that we were paying off loans too quickly, yielding college-student-credit-card interest rates of more than 25%.

So the next loan we paced more evenly, running some of our transactions on our old merchant services provider. We don't really like doing that because we can never be exactly sure what the credit card fees will be until long after the transaction posts. That's why we started using Square in the first place.

But that did lengthen the time it took to pay back the Square loan to nearly a year, getting the effective interest rate down to commercial lending territory. Then we could not help but notice that Square offered us a lot less the next time an offer came up. From this we guessed that Square was probably looking for an effective interest rate of 20% or so, and did not like it when we got that number down far below that. Either that, or Square just automatically interpreted the slower pace as a business slowdown and raised our risk quotient. There's no way to know.

Next we tried taking a very small amount --- [Personal Information Redacted] I think it was --- and ran every transaction on Square, just to show the real strength of our business. The loan was paid off in just a few weeks, giving Square a very high effective interest rate of something like 30%. (You're welcome, Square. We really do like you.) This seemed to increase the next maximum offer a little, but still not as much as we had originally.

Then we took out the largest loan on offer, at the biggest 13%-of-transaction repayment rate, and once again slowed the pace of payments using our MSP (never, of course, failing to making the minimum payments through Square required by the terms of the loan.) As we approach the payoff now it looks like we achieved an effective APR of maybe 18%. Nothing to write home about, but not extortionate -- and worth it given the astonishing convenience of the product.

So Square people --- are we thinking about this in the right way? Can you give us some idea as to what we should do to obtain the largest loans at the lowest effective interest?

Also, has Square considered incorporating a traditional credit check to be able to offer lower cost loans to preferred customers, or other mechanisms by which Square can verify risk and business flows? Does it automatically assume that borrowers are using only Square to process payments?













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I spoke to someone from their department yesterday and as always no help! I have given up on square capital and their customer support team.  I hope we get some real answers soon. ...still no offer lol 

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One thing that has certainly changed is the cost of capital. Interest rates are rising. That may be affecting how Square makes (or does not make) offers.

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Alumni

Hi @pristine2 - Thanks for laying out that very thorough question. I understand those frustrations about Capital, but unfortunately don't have more insight into the program. A little while back, we posted this article covering Seller Community + Capital Expectations. One of the things we share in that article is that we can't cover eligibility or account specific questions in the community. We do this because eligibility is a complex process and each business is unique so there is no one answer.

 

I'm sorry I can't provide more insight since I know this is a frustrating process. I did share your post with our Capital team so that they're aware of the types of questions and concerns we're receiving from sellers like yourself. 

 

If things do change and we can offer more insight, we'll be sure to post here. And we always encourage merchants to share their experience in these forums.  

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Thanks Katie ... although I am really not "frustrated".  The loans have been very helpful.

We'd like more transparency, but I can imagine all kinds of reasons why that isn't possble, and I didn't really expect a detailed reply.

I do appreciate you forwarding on the post. 

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Alumni

Got it @pristine2! Good to know you're not frustrated, but I'll still pass on your feedback to the Capital team. I'm all on board for transparency 🙂

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I belive when you do manual payments it takes 60 more days

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