Are tips and gratuity included in the loan repayment percentage?

[DavidO_]

Hey Guys,   The loan offered through square is super helpful, but what I noticed and can't get clarification on is the repayment %.   Currently the % of daily sales is set to include Tips-Gratuity.   I've tried to discuss this with live agent over the phone, but they don't seem to understand that a gratuity left for a service provider is not part of our "Sales Revenue". I'm curious has anyone had to deal with this and how to you circumvent the loss of income for the service providers when a percentage of the gratuity gets deducted to pay back the loan?  @Capitol @Loan @Square

[TheRealChipA · Accepted solution]

Hey there @DavidO_.  Before I clarify things, I want to be sure that you also know that you are charged card processing fees (2.9%+10 cents) on tips and sales taxes, too.  Is this “right?”  That of course is a matter for debate.  But this is not a Square-only issue.  The card companies (MC, Visa, etc) charge fees on the total amount of the transaction, including all taxes, tips and fees.  As a business, neither Square nor any other of their peers is going to just eat those fees.

I mention this because our Square loans (if you have read the loan agreement) are ALSO based on card processing volume.  Loan repayments have never been based on “sales revenue,” though that used to be a common misconception.  Since Square Loans are basically merchant cash advances — which ALSO for all companies offering those base repayment on card volume, not sales revenues — this is just a cost of doing business.  This is one reason why many businesses chooses never to do loans like this and prefer to work with their local bank.

In my business, when we use Square Loans, we base our cash flow forecasts on this fact.  Also, it helps that we choose to add the card processing fees into our menu prices so that we never pay card fees.  Since that also means that cash-paying customers are paying card fees it means we have a little “extra” to offset things like you are describing.  For us, at least, it all works out.

[TheRealChipA · Accepted solution]

Hey there @DavidO_.  Before I clarify things, I want to be sure that you also know that you are charged card processing fees (2.9%+10 cents) on tips and sales taxes, too.  Is this “right?”  That of course is a matter for debate.  But this is not a Square-only issue.  The card companies (MC, Visa, etc) charge fees on the total amount of the transaction, including all taxes, tips and fees.  As a business, neither Square nor any other of their peers is going to just eat those fees.

I mention this because our Square loans (if you have read the loan agreement) are ALSO based on card processing volume.  Loan repayments have never been based on “sales revenue,” though that used to be a common misconception.  Since Square Loans are basically merchant cash advances — which ALSO for all companies offering those base repayment on card volume, not sales revenues — this is just a cost of doing business.  This is one reason why many businesses chooses never to do loans like this and prefer to work with their local bank.

In my business, when we use Square Loans, we base our cash flow forecasts on this fact.  Also, it helps that we choose to add the card processing fees into our menu prices so that we never pay card fees.  Since that also means that cash-paying customers are paying card fees it means we have a little “extra” to offset things like you are describing.  For us, at least, it all works out.

[Summer2024]

Thank you @TheRealChipA for providing your great insight here, as you always do. 😁

[DavidO_]

Thanks for your detailed reply, but I respectfully disagree with some of your points. While it’s true that card processing fees apply to the total transaction amount (including tips and taxes), I believe building those fees into menu prices or passing them directly to customers as a surcharge can come across as unfair to the customer experience. Credit card fees are a known and predictable cost of doing business, and as business owners, it’s on us to manage those costs without penalizing customers for how they choose to pay.

When it comes to Square loans, the fact that repayment is based on card processing volume rather than sales revenue can indeed be confusing, but it still raises questions about how the repayment process might affect cash flow for smaller businesses. I’d argue that transparency and fair business practices matter more than passing costs onto customers who are simply supporting our business. Just my perspective!

[marielmt · Accepted solution]

Hi @DavidO_!

Thanks for posting on the Seller Community.

The repayment rate will be applied to your gross card sales, including tips and taxes paid by your customers using a credit or debit card, ACH payments, and QR code payments made with the Cash App. Please note that your repayment rate applies in addition to Square’s processing fees for these transactions.

Please contact us directly, our Square Loans line is open between 8am-5pm PT Monday-Friday if you want to give us a call.

[Jaybitd]

Hello everyone, I’ve never agreed with this process that square uses for repayment for loans as a gratuity for an employee should not be applied to the loans. A sale is a sale and  tip a a tip they’re different not a sale. I’ve always loved using the square loan option, but their repayment process is not quite right in my opinion. When you meet your minimum payment that’s required you should be able to pause if need be and a tip is not a sale. In other words they’re getting their money back anyway it’s just costing the business owner more Makes no sense to me.

[TheRealChipA]

@Jaybitd This is an industry standard for what are called Merchant Cash Advance loans, like Square offers.  No matter who your card processor is if you take out a cash advance loan you agree that a percentage of your total  gross card processing volume (which by definition includes sales taxes, tips and such) will be deducted every day until the loan is paid in full.  It’s in the loan agreements and it has been this way since the first MCA was given out.

No, this does not cost the business owner more over the life of the loan.  We still pay the same amount back — no more, no less.  And, again, the industry standard for these loans that all card processors use is that the minimum payment is just that — a minimum, not a place to stop making payments.  Square is just following the industry standard.  Also, of course tips are not sales.  Neither are sales taxes sales.  But they are and always will be part of gross card processing volume, which we agreed would be used to repay our loans when we signed on the dotted line.

All of this is why it is always good to read the loan agreements before entering into one of these loans.  Businesses get in trouble and die every day because they can’t handle the repayment terms for these easy-to-get loans.  If we don’t agree with the repayment terms, then we should not take out these loans — but complaining about the terms we agreed to is disingenuous.  If we don’t agree, there are no other options except for NOT taking the money in the first place.

[Jaybitd]

Look, I get that MCAs have been around forever and come with fine print, but acting like business owners are just whining when they question these terms is way off base. Not everyone has a law degree or hours to decode dense contracts, and lenders like Square know that. The ‘industry standard’ excuse doesn’t make it okay to bury gotchas—like daily deductions eating up tips and taxes—in pages of legalese. Small businesses take these loans to survive, not because they love the terms. Saying ‘just don’t take the money’ ignores how desperate cash flow crunches can get.

Your point about fixed repayments is fair, but glossing over how these loans can cripple cash flow with high effective rates—sometimes 100% APR or more—misses the mark. The ‘read the agreement’ lecture doesn’t help when sales reps push these deals as easy fixes. If you’re so keen on personal responsibility, maybe call out lenders for predatory marketing instead of dunking on struggling owners. There are options like SBA loans or crowdfunding that don’t gouge you daily. Acting like it’s all on us when the system’s rigged to confuse is the real disingenuous move here.”

[VanKalkerFarms]

This is definitely something people get hung up on not understanding how card processing works and or merchant loans.

Just think of it this way,  you had a CC sale of $100, there is 10% sales tax, and they left $20 tip.  That means a CC will be run for $130 total.  That is the only number the CC network will ever see, none of of what went into that number is know if it was 130 $1 items or one $130 item it is irrelevant to the network.  It is just a number and people may think it is unfair, but a transaction is a transaction.

And just think of it the other way if you were the CC company. Someone will run a credit card for a $40 item and "tip" $90 and if tips were excluded from CC fees you can see how fast this would get abused.  Money is money regardlesss of where it came from and will be charged the handling fee, in this case the CC network fees.

In all of this too it needs to be remembered Square, PayPal, Shopify, Toast, etc are all just a middleman in between you and the CC network and all the fees that are associated with that network.  Any of the providers are not keeping all the fees they charge you, they are lucky to be keeping a few percent with most going to the banks and CC network.  In a lot of cases on transactions under $10 they are actually losing money on the transaction and that is why the per swipe fee comes into play as there are just set costs no mater if it is a $5 charge or a $500 one.