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The Pros and Cons of Square Loans

Small Business GuidanceSarah Vogl

Square is an incredibly accessible payment processor for small businesses. Most of the businesses we work with use Square. My other business, Bear Dance Hemp Company, also uses Square, and we have taken out a couple of loans with them in the past while tackling various projects and store improvements. Square Loans offer small businesses a convenient way to access funding, but it's essential to understand both the benefits and drawbacks before deciding if it's the right fit for your business.

Disclaimer: I am not a financial professional; this is not financial advice!

Pros of Square Loans

  1. Easy Application Process: Square uses your sales history to pre-qualify you, making the application process quick and straightforward.

  2. Fast Access to Funds: Approved loans are typically deposited into your account within one business day.

  3. Flexible Repayment: Payments are made as a percentage of daily sales, easing cash flow management.

  4. No Hidden Fees: There are no origination fees, late fees, or early repayment penalties.

  5. Eligibility: In my experience, you are more likely to be approved for a loan through Square than you are through a regular bank as long as your sales through Square are consistent.

Cons of Square Loans

  1. Higher Costs: The fixed fee structure can result in higher overall costs than traditional loans, especially for larger amounts. The interest is typically high, and there’s no way to reduce the amount of interest you pay by paying off your loan faster.

  2. Repayment Terms: The automatic daily repayment may impact your cash flow during slower sales periods.

  3. Eligibility Requirements: Only businesses using Square for payment processing are eligible, limiting options for some businesses.

  4. Limited Loan Amounts: The maximum loan amount may not be sufficient for larger funding needs.

Conclusion

Square Loans can be a viable option for businesses looking for quick and flexible funding, especially those with a steady flow of daily sales. However, it's important to consider the higher costs and the impact of daily repayments on your cash flow. Assess your business's financial situation and funding needs carefully before making a decision.

If you’re a current client and you have questions about Square Loans, I would be happy to share my personal experience with you or refer you to relevant local CPAs or banks.