Square: Our Customers Actually Grow Faster With a Square Loan Than Without One

On average, Square customers that used the Square Loan product grew 6% faster than those that did not use it, the company revealed. Jack Dorsey, the CEO of Square’s parent company, Block, used the 3rd quarter earning’s period as an opportunity to discuss its lending operations. The relevant parts are excerpted in non-sequential order below:

“In 2013, we began offering capital to sellers because we saw a meaningful gap in the market: small businesses were often denied access to credit, in the same way they were once denied access to accepting credit cards. We utilized our deep understanding of the seller and their business to build a technology that invited them to accept a loan with transparent rates, and pay back simply by making sales to their customers. We called it Square Capital (which is now known as Square Loans).

Since then, we’ve underwritten more than $22 billion in loans globally, with aggregate loss rates below 3%. And we’ve proven we can expand access: 58% of Square Loans are to women-owned businesses, and 36% are to minority-owned businesses, both of which are higher than the benchmark we track If our sellers grow, we grow – and we believe Square Loans has a direct impact on our sellers’ growth. Sellers who take out a Square Loan grew on average 6% faster than sellers who did not take out a loan.

Many financial products trap borrowers in cycles of revolving debt. We don’t allow customers to take on new loans if they have an overdue balance. And repayment is built into how our products work: Square sellers repay loans through a fixed percentage of their revenue, creating a manageable-real-time payment flow.

On credit risk management, we have a long history of maintaining stable loss rates and these products act as working capital, which means they are usually short in duration. What that means for us is that a dollar used on our balance sheet can turn multiple times, driving capital efficiency while providing us with high-quality data to continually refine our technology-driven underwriting.”

– Jack Dorsey

Square shared some stats as well, showing that the average loan term was 150 days and average loan size is only $10,208.

Loss rates on Square Loans have historically been less than 4%. Square is a company to watch considering it is likely the largest online business lender in the United States.