SME Loans Become Square’s Rising Star

Square released its quarterly figures earlier this week to applause from investors, who boosted the firm’s stock up 5 percent after trading closed. Square has increased its guidance for the rest of the year, according to reports.

With analysts continuing to examine Square’s successes, for some, it seems the company is no longer about the white point-of-sale card readers that made the firm famous.

Square Capital, the company’s SME lending unit, some say, is the new driver behind the firm’s profits. The company said during its third quarter earnings call that it has now provided more than $1 billion in loans to its small business users, just two years after it began lending operations. Reports noted that this pace of SME financing is on par with that of PayPal.

The company is keeping mum about how many SME businesses it’s lent to, but Square Chief Financial Officer Sarah Friar did say that repeat customers are an unexpected surprise. “It’s something we didn’t foresee when we started,” she said during the company’s earnings call.

Analysts estimate that Square Capital has seen an uptick in SME business borrowers this year compared to 2015, with about 35,000 companies borrowing funds in Q3 — up from 34,000 that borrowed in Q2. Reports did note, however, that the year isn’t over yet, and without exact data, the market can’t be certain as to whether Square Capital’s customer base really is growing.

Since its launch, Square has been investing in its lending operations. Earlier this year, the firm said it expanded the data analytics team under Square Capital by acquiring the Framed Data team, which specializes in predictive analytics. Square Capital relies on the data from its corporate clients’ Square systems, like transaction history, to mitigate risk and assess creditworthiness.