Twitter founder’s startup set to offer financial support for small businesses

Twitter founder Jack Dorsey’s payment platform startup Square has announced that it plans to start a credit service to give small firms and businesses, and SMEs in general, a boost.

The past few years have seen an explosion in alternative finance. As firms have been forced to look away from banks and traditional lenders for credit, the likes of crowdfunding and venture capital have shot up in popularity.

Now, mobile payments platform Square has announced it plans to start offering its own small credit service.

The start-up developed by Twitter founder Jack Dorsey began as a mechanism to help small companies process payments from credit cards.

Yet, in an interview with CNN Money, Mr Dorsey explained that he now wants to help small business customers – Square’s core clientele – to expand without facing the common challenges that come with taking out loans from elsewhere.

Square customers will be able to receive quick cash advances that will be repaid over a period of around ten months. Because Square already has all the customers’ bank account details and has a good idea of how the business is doing, it can decide to approve the application much sooner than other lenders.

Eventually, Square will recoup the loan and an additional flat fee by taking a set percentage of the borrower’s daily credit card sales until the balance is repaid, meaning that when business is slow repayments go down. But if that means that it takes longer than expected to pay off the full amount, there will be no penalties or extra fees for companies.

Time reports customers have already borrowed tens of millions through the company’s pilot programme, a figure which is likely to rise considerably once the full scheme is up and running. But the company’s lending intentions may be held back by its unique selection criteria – businesses can’t apply for the loans.

Instead, they simply have to use Square’s payment platform or other services and hope that the company approaches them with the offer of an advance. Every finance offer will be unique to the borrower’s circumstances, ensuring the terms are affordable.

Mr Dorsey’s company has been attempting to expand into a broader range of business services for some time. Since it only collects 2.75 per cent processing fee on every transaction made by its customers, Square has been looking for other ways to draw in revenue. That’s what led to the development of Square Feedback, which collects customer comments. It may be unclear so far how effective the lending programme will be, but it certainly marks another step along that road.