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How Partnerships Are Important to Square

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Small businesses face funding problem

A Federal Reserve report shows that access to capital remains one of the major challenges facing small businesses. Last year, for instance, 70% of small businesses didn’t receive the funding they wanted. Payment company Square (SQ) runs multiple operations, and one of them deals with giving loans to small businesses. In the second quarter, the company disbursed 60,000 small business loans amounting to $390 million, representing an increase of 22% year-over-year. With the latest loan disbursement, Square has handled ~$3 billion in small business loans since 2014.

Square appears well-positioned to take advantage of the strong demand for small business loans. The company has been partnering to reach customers outside its ecosystem.

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Lending to eBay sellers

Last month, Square partnered with eBay to provide loans to eBay (EBAY) sellers. In addition, the two companies agreed to share the cost of marketing Square’s credit service to eBay sellers.

Square began lending to merchants outside its ecosystem in 2016 through a partnership with Upserve, a startup that provides a software platform for running a restaurant business. The deal with Upserve included the start-up helping market Square’s credit service.

Partnerships not only help Square reach more customers more quickly but also open up opportunities for the company to lower its customer acquisition costs by sharing marketing expenses with its partners.

PayPal sold consumer lending business

PayPal (PYPL) and Amazon (AMZN) also extend small loans to their customers, and each has loaned more than $3 billion since they launched their credit services. But PayPal recently completed a transaction that saw it narrow its exposure to the credit market. The company sold its US consumer lending operation to Synchrony Financial (SYF).

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