By Andrea Raj, Head of Product, Square Banking.
For over a decade, Square has helped sellers access critical capital by taking a fundamentally different approach to small business lending. That’s because capital is the lifeblood of small businesses, and when our sellers succeed, it creates a flywheel for shared growth, resilience, and longevity that benefits their communities and Square alike.
Rather than relying on static data and outdated documentation, Square’s technology-driven underwriting is powered by advanced machine learning and real-time data, enabled by the platform’s unique position in the flow of funds. Through this deep understanding of a business’s health, informed by signals like transaction volume and revenue patterns, we have been able to extend credit to businesses that traditional financial institutions deem too risky or too small.
This innovative approach has been transformational. Since 2014, we have originated more than $32 billion in loans for small businesses, with an average loan size of nearly $10,000, while also addressing systemic gaps in access: 58% of Square Loans go to women-owned businesses, 36% go to minority-owned businesses, and more than half of Square Loans go to businesses in states where traditional loan approvals are the lowest. Combined with the flexible repayment sellers enjoy – paying more back on busy days and less when business is slow – Square’s modern approach to lending showcases the impact a fairer, more inclusive credit system can have.
This year, we are building on our real-time lending expertise in order to extend credit to even more sellers. By utilizing improved underwriting models that can assess the creditworthiness of more sellers with varied business profiles, from new-to-Square businesses within their first five days of processing to seasonal operators and project-based earners, we are now extending credit offers to over 50% more sellers than were previously eligible for Square Loans.
Building for Different Business Realities
Square Loans offerings have helped hundreds of thousands of businesses access capital based on their real transaction performance and history on the platform, and now we’re tapping into a clear, pressing opportunity: hundreds of thousands of additional sellers with strong business fundamentals who previously couldn’t access Square Loans.
These are sellers new to Square, still building momentum and tenure on the platform; seasonal businesses, whose activity spikes a couple times a year; and service providers with project-based revenue patterns that Square Loans’ model previously couldn’t underwrite confidently.
To serve these sellers, we’re not changing or loosening our standards; instead, we’ve improved the innovative underwriting models that underpin Square Loans to more accurately evaluate the different realities that so many businesses experience – all while maintaining the same responsible practices that have made Square’s credit offerings not only industry leading, but beloved by sellers across the globe.
New Pathways to Capital
Our machine learning algorithms are now able to assess creditworthiness for both businesses that are earlier in their Square journey, as well as those with non-standard revenue patterns, by modeling funding options on a shorter time-horizon when compared to our original Square Loans model. While repayment on traditional Square Loans is completed within 10 months on average, we are now able to extend smaller credit offers that are easily repaid over shorter periods of time, helping more sellers cover immediate cash flow gaps, supply needs, utilities costs, and more.
We recently began rolling out these new offers to more sellers, and the early results demonstrate we’re filling a significant market gap, further broadening access to credit, and setting more small businesses up for success: nearly half of sellers that have taken these new loans had never received a Square Loan offer before, with 66% of offers going to sellers that have less than $25k in annual GPV and 95% of offers going to those with less than $125k in annual GPV.
Our history of lending is about more than simply delivering financing to small businesses – it’s about ensuring neighborhood favorites, multi-generational family businesses, and solopreneurs with a dream are given the same shot at success that traditional lenders have historically reserved for established enterprises. Driven by Square’s purpose of economic empowerment, our improved underwriting models expand that opportunity to more sellers than ever before – and give businesses the chance to focus on growth that benefits their staff, shoppers, and broader communities.
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