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.