The proliferation of merchant cash advance companies continues to flourish, except the latest entrant, like other recent payment platforms before it, should give the shadier side of this business some pause to reflect.
According to Small Business Trends, Square is testing a program called Square Capital. So far only a few select merchants have been invited to participate. Invitation seems to be based on the amount of transactions each merchant is currently processing through Square. This move follows similar programs offered by other payment providers including PayPal Working Capital and American Express Merchant Financing.
Square Capital’s pilot program will offer three funding tiers, each featuring fixed advance costs. During rollout the program offers either 1) a $3,200 advance with a one-time cost of $384; b) a $5,600 advance with a one-time cost of $672; or c) an $8,100 advance with a one-time cost.
Merchants will repay advances respectively with four, seven or ten percent of future daily sale proceeds. Payments continue to be deducted until the initial advance and a one-time cost is paid back.
For anyone believing the merchant cash advance sector is getting crowded, they’re right. But many of these companies are simply reiteration of ‘hard money’ lenders moving from real estate to working capital. Many of these companies have poor reputations, shady dealings and predatory advance rates, which often trap business owners into a continuum of renewals and ever-increasing obligations.
Square and other more reputable providers of this kind of funding, like Kabbage and PayPal, will be taking the cream of the crop in this business with more reasonably priced funding and honest dealings. Their access to raw merchant performance analytics means that they will recognize lending opportunities in real time as fast as the business knows.