Small businesses succeed when they have access to tools that enable them to grow — and the U.S. economy depends on their growth and success. Small businesses create 64% of net new jobs each year and employ nearly half of our nation’s private workforce. They represent 46% of U.S. sales1, punching far above their weight compared to large companies. Furthermore, the uniqueness of small business creates a tapestry of vibrant and distinct communities across the country. They feed us, cut our hair (and our pets’), fix our houses, create beauty and art in our neighborhoods — the list goes on. These businesses take care of us every day.
But are we taking care of them? Although small businesses are the lifeblood of the U.S. economy, they are woefully underserved.
After an entrepreneur puts in the incredible amount of work required just to start a business, access to capital is often still a critical need. They need to purchase and carry sufficient inventory so they don’t lose sales opportunities. They may need to make brick-and-mortar expansions and repairs to keep the business attractive to customers. And if they are able to invest in staff or day-to-day needs, they have more time to focus on the most important aspects of the business, as opposed to administrative tasks.
However, small businesses have historically not had easy or fast access to capital. Even if a business owner spends, on average, more than 24 hours of time applying for a loan, and (often) several weeks waiting for a decision, 27 percent are denied or only partially funded. Forty-four percent do not even apply due to the difficult application process. This problem is solvable, but everyone in the industry must do their part.
We launched Square Capital in 2014 to offer business loans to sellers and help them grow their business. Square Capital uses technology like machine learning to analyze sales and transaction data to determine seller eligibility. Once a qualified seller is identified, we proactively send a loan offer rather than require the seller to seek financing through a long, complicated — and often unsuccessful — process. We believe in transparent pricing and clearly communicate the total cost of financing, which never changes for the life of the loan. And we offer capital at amounts far lower than what has been available to small businesses from traditional lenders: Our average loan size is approximately $6,000. Eligible sellers receive their offers and can accept a loan with as little as three clicks, and funds are often deposited as fast as one business day. Sellers repay their loan by simply running their business: Repayment occurs automatically through a fixed percentage of every card transaction a seller takes.
Even though we’ve made small business lending easy for some, there is still a huge need to make these services more available to more sellers. Recovery of small business lending since 2008 has been slow, especially at the levels of funding that many micro-merchants need. And worse, many rural communities are facing greater credit constraints as local bank branches close. According to a recent report in The Wall Street Journal, when adjusted for inflation, the value of small loans to businesses in rural communities fell to less than half what it was in 2004. In big cities, loans fell only a quarter. Technology can help make lending possible at the levels businesses need and the areas in which they want to operate — their home communities. At Square Capital, 80% of our loans go to small businesses located outside the top 25 most populous cities in the U.S.
It’s essential that we continue to expand access to capital for small businesses. We recently applied for an ILC (industrial loan company) charter to engage directly with regulatory bodies as we grow Square Capital and develop more financial products for small businesses and the underserved. Our application reflects our ability to address the needs of small businesses that few banks reach, which we hope is a key consideration for the FDIC when considering our charter.
Square will remain at the forefront of rethinking the lending experience for the benefit of small businesses, and will continue to expand access to capital. I challenge the industry to think more broadly about what it can do to make the credit market more inclusive more quickly. There are three areas that should be addressed: innovation around data, the need for speed, and the importance of simplicity and transparency. There are limitless possibilities within each of these. Small businesses are the lifeblood of our economy — let’s make sure we’re taking care of them.
 Frequently Asked Questions About Small Business, 2012. U.S. Small Business Administration Office of Advocacy.
 2016 Small Business Credit Survey. Federal Reserve Banks.