Square Capital, the advance-payment arm of Square, announces new funding, says it's loaned $25M in last month, over $500M to small businesses in last 18 months
Matt Weinberger / Business Insider :
Context & Ripple Effects
This 2015 funding announcement is the seed round of what became Square's second business. At the time, Square Capital's $25M month and $500M over 18 months were advances repaid through Square's own card-processing flow — lending as an attachment to payments, not a standalone product.
The arc since then confirms the strategy compounded: Square later opened the same capital to merchants outside its payments base entirely, and within two years the loan book was big enough to show up in quarterly results before the company moved to formalize it all under a bank charter.
First-order effects
- The new funding replenishes Square Capital's balance sheet at its current pace — roughly $25M deployed per month — letting it keep advancing working capital to the small businesses already running on Square's point-of-sale.
- For those merchants, capital arrives with no separate application track: repayment is deducted from their Square-processed sales, tying credit access directly to their payment volumes.
Second-order effects
- Opening the book beyond Square's own merchants turned the advance program into a standalone lender competing with traditional small-business finance, not just a loyalty perk — a move that made the loan volume a reported earnings line, hitting hundreds of millions per quarter by late 2016.
- Payments rivals watching Square monetize its merchant data through underwriting faced pressure to build or buy equivalent lending arms, since the advance margin sits on top of infrastructure they already operate.
Third-order effects
- If lending kept compounding inside a payments company, the regulatory endgame was a charter: Square's later application to form Square Financial Services as an industrial loan company would let it fund loans from deposits rather than external capital rounds.
- The pattern points toward payments processors structurally becoming banks — data-rich transaction networks using their own merchant flows as both distribution and repayment rails, with charters converting a services business into a balance-sheet business.
The trend: Payment processors are vertically integrating into small-business lending and, ultimately, banking, using their transaction data as the underwriting edge.