- Key insights: Square, Block's merchant-focused business line, is rolling out changes to its proprietary machine learning underwriting model that opens up small-business loans to seasonal businesses and new-to-Square merchants.
- What's at stake: Small businesses are historically undercapitalized and have trouble getting loans, and Square's ability to underwrite loans based on traffic gives it an advantage over traditional lenders.
- Supporting data: Growth in Square's financial services-related products accounted for 18% of Block's total financial solutions revenue growth of $925.9 million in 2025, according to its 10K filing with the U.S. Securities and Exchange Commission.
After more than a year of tweaking its underwriting models, Block is expanding the number of merchants to which it can extend loans.
The focus is on seasonal businesses and new-to-Square merchants, which Block has historically been hesitant to lend to due to difficulty in predicting future cash flow. But changes to its proprietary, machine learning powered underwriting model is giving the company new confidence in its ability to extend capital on a shorter time horizon.
"Access to capital [for small businesses] is usually the hardest when you're starting out, and we wanted to just take that problem head on," Andrea Raj, global head of product at Square Banking, told American Banker.
"Square Loans were covering 80% of [Square's] gross processing volume," Raj said. "Then there was this long tail of businesses that we were not providing access to capital. And what those typically would be were highly seasonal, highly volatile businesses that come in and off of Square."
Block used 17 years of historical data along with more than a year of randomized testing data to train multiple models on short-term success metrics.
Prior to its underwriting expansion, it would generally take Square about a month or two to see how a business was performing before the company would extend a loan, Raj said, which made it difficult for seasonal businesses to gain access to capital. It also made it difficult for fledgling companies to take out a loan.
Now, Block says that it can confidently underwrite a small business the first time it processes a payment.
"Based on your first customer and what they ordered and how much that check was for that day, relative to then all of the other businesses that look the same and in the same geography, we can now predict, 'What does your likely revenue look like?' 'What does your outlook look like?' And then, based on that, rightsize the lending for it," Raj said.
The loans to this new cohort do bear some differences from Square's traditional small-business loans, namely in their term length, dollar amount and amortization schedule. For example, typical Square loans have nine-plus-month loan terms, whereas the loans to seasonal and new-to-Square businesses have term lengths ranging from 30 to 120 days. Square also adjusted the amortization schedule to one payment per month.
Block has been putting an increased focus on lending to both consumers and small businesses, which it does through its lending subsidiary
Square has originated more than $32 billion in loans to small businesses since 2014, with an average loan size of nearly $10,000.
Small businesses are historically undercapitalized and have trouble getting loans, and Square's ability to underwrite loans based on traffic gives it an advantage over traditional lenders who move slower, according to Aaron McPherson, principal of AFM Consulting.
Revenue growth from financial solutions, which includes Square Lending and Cash App Borrow, outpaced Block's commercial enablement revenue in 2025, according to the company's 10-K filing with the Securities and Exchange Commission. Revenue growth from financial solutions clocked in at $925.5 million, an increase of 28% year over year. Commercial enablement revenue, which includes Square processing, Cash App Card usage and revenue from Afterpay Post-Purchase, grew 10% year over year to $1 billion.
Square-related financial services revenue accounted for 18% of that growth, whereas Cash App Borrow revenue accounted for 74% of that growth. Block generates revenue from lending primarily through loan origination and servicing fees and from the sale of those loans to third-party investors that purchase the loans on a forward-flow basis.
"Lending is strategic for Block in that it deepens the relationship with the small businesses and is a primary cross-sell opportunity," McPherson told American Banker. "This is why the growth rate should be higher."
Square anticipates that the changes to its underwriting model opens up credit access to about 50% of the small businesses that the company previously did not lend to, or more than 250,000 merchants.
At the end of the day, Raj said the changes to its underwriting were made possible by using real-time transactional data.
"It's fundamentally the data," Raj said. "And our data and models just got sharper."
