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A comment on Square Banking.

Re:Square Banking by schleiss on Tuesday July 20, 2021 @03:53PM (#27898430)
I'm curious about the small business loans. I'm from Europe and the animations suggests for a $9000 loan a total repayment of $10305. Let's assume you make $5000 in revenue per month and they use 10% as a repayment cut per transaction. That would yield a 20 month long repayment schedule. The "interest" would be roughly 7% annually. In today's world, isn't that greedy? In today's world, Warren Buffet can issue a 0% coupon bond[1]. I'm just perplexed. Especially since it's Square and not Goldman Sachs or JP Morgan.

According to the St Louis Fed, the average interest rate for Small Businesses was about 3.5 - 5% [2]. For me this sounds like an incredibly bad deal.

[1] https://cbonds.com/bonds/698053/

[2] https://fred.stlouisfed.org/series/EEBXSSNQ

[ Parent | on HN ]
Re:Square Banking by jvm on Tuesday July 20, 2021 @03:57PM (#27898479)
7% is a low interest rate for an unsecured small business loan.

I'm not 100% sure what the FRED chart you cited means by "Effective Loan Rate for Small Business Administration" but those are most likely collateralized.

[ Parent | on HN ]
Re:Square Banking by schleiss on Tuesday July 20, 2021 @04:04PM (#27898563)
I can't really tell. I haven't taken a loan yet.

Let's just hope for all borrowers inflation remains "transitory" and growing, than it isn't such a big deal.

[ Parent | on HN ]
Re:Square Banking by imtringued on Thursday July 22, 2021 @09:27AM (#27918562)
You have to add profit margin and default risk on top. 7% for a business that you have lots of information about is still pretty bad though. It should be 4% all inclusive. You're right about one thing. The flat fee for the loan actually ends up obscuring the complexity. It's difficult to compare the square loan conditions to conventional ones.
[ Parent | on HN ]
Re:Square Banking by htrp on Tuesday July 20, 2021 @03:56PM (#27898474)
In a word yes.....

However, you don't account for credit risk whereas the st louis fed rates are based on existing bank small business loans which are very conservative.

Presumably the expected defaults on Squares product would be very very high.....

[ Parent | on HN ]