Twitter founder’s latest venture has money for small businesses ― but don’t call it a loan


For every small business, there’s a wish list: Things the business owner would love to do, if they only had the money.

For Drew Crockett, owner of HubBub Coffee, it was cups. Specifically, branded cups bearing HubBub’s logo that could serve as walking billboards for the coffee shop as drinkers tote them around town.

“Now, in order for that to make cost-effective sense, you have to do it at a scale, and that scale requires minimum purchases, and those minimum purchases in the cup world are somewhere in the ballpark of 50,000 cups at a time,” Crockett said.

Even for HubBub, a company that started with one food truck in 2009 and now has three brick-and-mortar locations, 50,000 branded cups was too tall an order.

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That changed earlier this summer, when Crockett received an email from Square, the company whose little white credit-card readers plug into an iOS or Android device and allow small businesses and stand-alone merchants to accept plastic for payments.

The email was an offer from Square Capital, a new arm of that company, and it wanted to give Crockett money — in fact, it offered three different amount options that Square Capital had calculated based on the information about HubBub it had been gathering over the three years the coffee shop had been using Square to accept payments.

It’s more like a cash advance than a loan, more like an angel investment than venture capital, and it turns the traditional loan process on its head.

Rather than a business owner going to a bank to make a case for why it’s worth lending to, Square goes to the business and offers it money — with no conditions on how it must be spent.

It’s the latest venture of Jack Dorsey, who co-founded Twitter and Square, two companies that have helped democratize mass communication and small-business commerce.

Payments ‘ebb and flow’ with business

Unlike a traditional bank loan, Dorsey said, Square Capital wants to make the process of getting business capital more transparent, easier to understand, and much faster. The whole process can take as little as one day to complete.

“The fee is up front, printed right there, you know exactly how much you’re going to pay,” Dorsey said. “You don’t need to visit a bank, you don’t need to provide any collateral, you don’t need to provide any extra information. We’ve already done all the work, and we understand your business, we understand where it’s going. And then it’s really flexible with your business, it ebbs and flows with your business.”

That last part, about flexibility, may be the most novel part of the concept.

Instead of forcing a small-business owner to make a set repayment every month, regardless of how well the business is doing, Square Capital takes a pre-set cut of transactions made with the Square reader and repays itself, usually over the course of about 10 months.

For example, if Square Capital advances a business $10,000, it will pay back $11,000, through a daily 10 percent cut of card sales.

So the better the business does, the faster the cash advance is repaid. There is no interest rate, only the set fee Square says a merchant will repay on top of the original advance amount.

For businesses that don’t succeed and can’t repay, Dorsey said, Square considers each on a case-by-case basis.

“We always want to make Square be associated with fairness,” Dorsey said. “So we’ll work with a merchant to understand what happened.”

Square Capital began testing its cash advance system last year, and took it to a wider public release in May. The pilot program advanced $50 million to more than 10,000 businesses, and a new round of capital funding will allow it to do even more, Dorsey said.

When that email arrived, Crockett said, it was a no-brainer: Cups.

“It was like, this is what we’re going to do with it, because it’s funds that we didn’t have to worry about where they were going to come from, we didn’t have to go to a bank and sit there and jump through hoops to get someone to extend us a $10,000 line of credit,” he said.

So HubBub Coffee got its cups, along with a custom catering menu created by a quality designer, allowing it extend the company’s business offerings and bolster the brand. 

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