How does Square Capital determine and structure loans for small businesses?

Square Capital uses real-time sales data from their point-of-sale system to determine appropriate loan amounts for small businesses. By analyzing transaction patterns, they calculate a business's projected annual revenue and typically offer loans worth about 8-10 months of that revenue. The repayment structure is uniquely flexible—businesses pay back a small percentage of each daily transaction, allowing payments to fluctuate with business performance. This means if a business has a slow day or closes temporarily (due to vacation or disasters), they only pay when they're earning. This approach creates an opportunity for small businesses with volatile day-to-day operations to access capital without the stress of fixed payment schedules.