Square Capital’s Default Rate is 4%

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Square IPO

Square revealed today that its Square Capital division had extended $153 million through more than 23,000 advances and loans in the first quarter. The company is still transitioning from merchant cash advances to loans to appease institutional investors. This was not only said at LendIt by Jackie Reses but also reiterated in their Q1 earnings report. “We believe that the transition to a loan product further increases our ability to attract new Square Capital investors,” it said.

Their default rate continued to hover at 4%.

That number is shockingly low considering that under a pure merchant cash advance model they did not conduct credit checks, nor did even they review bank statements or tax returns. Rather the company relied almost entirely on a merchant’s sales history with Square.

This process may have made funding easy but was potentially a hard sell to regulators. As part of their transition to a lending model, all applicants are now subject to a credit approval and have to supply identifying documents. Square also bought an analytics startup less than two months ago to help them make more informed underwriting decisions. This can only mean that if their default rate was 4% with no underwriting, their prowess as a lender will likely increase considerably.

Last modified: May 5, 2016
Sean Murray


Category: Business Lending

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