Alternatives to Square Capital Small Business Loans
Updated: Aug 25
Looking for more information on small business loans? Check out Honeycomb's Ultimate Guide to Getting a Small Business Loan
If you run a small business, chances are that at some point you’ve needed money in order to make money. Whether it’s to fund startup costs, get through a tough time (like all of 2020), build new locations, or just cover emergency costs, there are a variety of ways that you could fund your small business needs.
One way through which many small businesses have recently been funding their needs is through online lenders like Square Capital. While these lenders offer quick cash, there are often many drawbacks to lending through them. In this article, we’re going to go into what Square Capital is and offer up some alternative funding options you might want to consider if you’re looking for small business financing.
What is Square Capital?
You might be familiar with Square if you’ve ever gone to a local farmer’s market or your favorite coffee shop and needed to pay with a card. Square is a platform that allows small businesses to easily take credit card sales, but they also have a few other offerings, such as marketing, team management, and of course, lending.
Online lenders such as Square Capital often can get small businesses loans super fast, which is great when you need emergency funds or can’t find other forms of financing.
However, there are many, many drawbacks that come with these lenders. Often, they charge exorbitant interest rates such as a 94% APR or take an amount off the revenue every day. Fees, prepayment penalties, and more are other ways that they take advantage of small businesses that are desperate for cash.
The way Square Capital works, for example, is that they offer merchant cash advances to small businesses based on their sales history with Square. They can then offer these merchant cash advances from $300-$100,000 that get to small businesses fast.
So, how do they make money? Instead of charging interest, Square Capital charges a flat fee off of credit card sales for their loan recipients straight from their point of sale system Meaning, on some days you might be paying more off your merchant cash advance than on other, slower days. So, even though incrementally it might not seem like you’re paying a lot, you’re really paying an exorbitant amount.
Other drawbacks to Square Capital are that it’s only available to Square customers and that its flexibility can be deceiving. If, for example, you’ve had a slow few weeks and the fee skimmed from your credit card revenue isn’t meeting the minimum for your merchant cash advance agreement, Square Capital can charge you for that.
Alternatives to Square Capital
Small Business Administration Loans
The Small Business Administration (SBA) is a common way that small business owners are able to get the capital they need for their businesses. They can fund projects from $25,000 to $1 million and are often used for large-scale growth projects, or often for businesses starting from scratch.
Small Business Administration loans can also be used to refinance high-interest loans or loans from lenders like Square Capital.
We go a bit further into detail about how Small Business Administration loans can be used either to fund or supplement other loans meant to further your business in this blog post.
Bank loans are another traditional way in which small businesses can secure financing for a wide range of projects. Whether it’s a loan for real estate, equipment, loans for working capital, or establishing a line of credit, many small businesses have relationships with their banks for needs like this.
Bank loans are great when you’re already an established business, and when you’re looking to fund major projects especially.
However, a lot of banks won’t lend to new businesses, most requiring businesses to have been around for at least two years.
Crowdfunding is one way that many small businesses have been able to grow their business. Some small businesses, especially those just starting out, have gone to crowdfunding platforms like Indiegogo and Kickstarter to garner interest in their companies and to raise money.
Honeycomb Credit is a crowdfunding platform similar to these, except with a bit of a twist. Instead of donation-based crowdfunding, this is debt crowdfunding. We range loans from $15,000 to $250,000+, and our interest rate ranges from 5-12%. What’s more is that your customers can contribute to a loan that goes to your business, and receive a return on their investment!
Why does this matter? Well, by allowing your customers to invest in your business, they become far more than just regular customers. They’re now invested in your success because it means their success, so they’re more likely to be repeat customers and to advocate for your brand to their friends and peers.
Small businesses that have crowdfunded through Honeycomb have seen on average a 33% increase in revenue. This is due in part to the customer relationship, but also because our team will guide you through the crowdfunding process and help create marketing buzz in your community about your business’s campaign.
This relationship is why we have an 83% success rate. By helping you crowdfund, Honeycomb can strengthen your customer relationships, widen your customer base through marketing, and introduce your business to our network of Honeycomb investors who are interested in small businesses like yours.
Get the cash you need for your business on your terms
A Honeycomb crowdfunded loan is more than just a loan that’ll get you quick cash for your business - it’ll also introduce your business to a whole new network of investors (and potential customers) while strengthening your relationship with your existing fans.
Learn more about Honeycomb’s crowdfunded loans for small businesses by signing up below: