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Square Raises More Money to Make Small-Business Loans In April, Square advanced nearly $25 million in capital.

By Leena Rao

This story originally appeared on Fortune Magazine

Entrepreneur

Square, the Silicon Valley payments company, is expanding its loan program to small businesses. The company announced on Tuesday that Square Capital, its loan-making division, has raised an additional investment from previous backer, Chicago-based Victory Park Capital (which tripled its original investments) and new investor Colchic Capital.

Square, co-founded by Twitter's Jack Dorsey, says that its Capital arm has been growing at a fast clip. It has loaned more than $100 million to more than 20,000 businesses over the past year. In April, Square Capital advanced nearly $25 million in capital.

Square Capital aims to provide loans to businesses that are unable to secure loans from traditional financial institutions. To evaluate whether a business qualifies for a Square Capital loan (and what its fee structure should look like), Square evaluates its sales data and cash flow, among other information.

After a loan is made, Square recoups the money as part of future card sales. For example, Square may offer a business a $10,000 loan plus charge the merchant another $1,000 in fees, or 10 percent. The business will then have to pay back $11,000 and this money will automatically come out of future card sales using Square over a fixed time. Square says it will take more money out of a merchant's' sales if business is doing well, and will take less if business is suffering.

Square says that 80% of merchants who have completed their first Square Capital advance have applied for a second round of capital.

Square Capital is part of the company's renewed efforts to focus on providing financial and payments services to small businesses. This comes after Square's high-profile deal with Starbucks recently ended—for about two years, the coffee purveyor accepted mobile payments using Square services.

Square also offers peer to peer payments, disputed purchases protection, analytics, and instant deposits for merchants using its Register app.

Square isn't the only company focused on lending to small businesses. Lending Club, Kabbage, and OnDeck all offer similar services.

Leena Rao is a senior writer at Fortune.

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