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Schermata 2014-06-09 alle 09.26.44

Square has decided to take its first steps into the world of loans. The company known for its mobile POS service has launched Square Capital: a money lending service made simple for small and medium sized businesses that already use the Square Register system.

Recent rumors have it that Square registered over 100 million dollars in losses in 2013. So, possibly CEO Jack Dorsey decided to diversify and came up with the idea of this service that is dedicated to small enterprises who need credit but may have difficulty receiving it through traditional bank loan systems. It is a new path that, given the difficult economic situation and the ever-growing requests for micro-loans, could truly become a money making endeavor for Square.

At the moment, the service is offered to clients who already use Square Register, Square’s cash register service that allows the company to register all sales activities of a business, which are then used to decide how much to loan a business reducing the risk of no return payments for Square.

Square Capital works more simply and faster than traditional loaning methods and has a 14% additional cost. Another difference compared to traditional channels is the fact that Square does not set a deadline by which a company must repay a loan. Square has an average repayment period of 10 months, but there are no penalties for exceeding this period.

But the truly novel part of the service is that the merchant can receive a loan within 24 hours and this loan is then repaid automatically, with a set rate that is applied daily according to earnings made through card acquisitions. Therefore, if a merchant does not earn anything through its Square Register payment system then they are not required to repay the loan that day. It is an interesting model, but it also has its risks. Like any innovation in the end.