May 28, 2014 · 2 minutes

Square is about to become a loan shark. The company today announced the launch of Square Capital, a cash advance program through which small businesses will be offered a lump sum in exchange for a 10 percent cut of all sales until the advance has been paid off with interest. The advances are modest -- most reports cite $10,000 as a typical amount -- and are meant to be paid off 10 months after they are issued, though Square says there is no penalty for being late.

These advances might help small businesses get the cash they need to keep growing. Square says that it has already given thousands of businesses "tens of millions of dollars" as part of the program's early testing, and some of those businesses have told Wired and the San Francisco Chronicle that getting funded through the program was much easier than applying for a loan. Capital, at least according to Square, is all about helping the Little Guy™ fight the good fight.

Square is using data collected through its payments tools to decide which businesses should be eligible for these advances instead of waiting for someone to decide that they need some cash. That's where the service gets a little strange: instead of simply offering cash to businesses that clearly need it, Square is asking business owners if they want an advance that they'll be able to pay off within 10 months, regardless of whether or not they've actually been looking for a loan.

This doesn't make Square a loan shark in the traditional sense, as the company's interest rates aren't obscene, but it does mean that the company is swimming through its oceans of data in search of a little blood. (Or, in this case, a business that is doing well enough to repay a loan.) While the company has adopted the "Fish are friends, not food" mantra from "Finding Nemo," any startup offering other companies tens of millions of dollars will eventually bare its teeth.

For Square, this move has been a long time coming, as the company desperately needs to find higher margin lines of business to offer alongside its core product of payment processing. The company has thrown a number toyed with a number of ancillary services, but lending may be the most universal need among its small business customers. With a possible IPO or M&A exit looming, it's essential that Square gets this right the first time, otherwise that $5 billion valuation may start to feel like even more of an albatross around its neck.

Square is choosing to highlight the ways Capital can help businesses grow with cash advances, its willingness to offer them without a clear repayment schedule, and its ability to identify any business that can afford to take a 10 percent cut of its sales for an unknown period of time. But until we know what happens if a business folds while it still owes Square thousands of dollars, or how much Square plans to make with the program, it's not a panacea for business owners. It's part of a business that, by all accounts, desperately needs to start generating some profits.