January 22, 2019
Via e-mail: [email protected]
Department of Business Oversight, Legal Division
Attn: Mark Dyer, Regulations Coordinator
1515 K Street, Suite 200
Sacramento, California 95814-4052
Department of Business Oversight
Re: PRO 01-18 - Square Capital, LLC - Comments on Proposed Rulemaking SB 1235
Dear Mr. Dyer,
Square Capital, LLC (“Square Capital”) received from the California DBO (“DBO”) the
letter dated December 4, 2018, requesting comments on Proposed Rulemaking SB 1235. Attached
please find our response to the DBO’s request.
Recent remarks from regulators, including the DBO, indicates to us you are not only aware
of how technology has revolutionized the way lending is done, but you are embracing it as you look
toward the future of lending. More products are now accessible to more people, particularly those
previously underserved by the traditional financial system.
We believe that now is an ideal time to put a regulatory framework around this innovation to
ensure that new channels are being opened and expanded in a safe way. Square Capital has used
technology and data to open up access to capital at amounts far lower than what has been available
to small businesses from traditional lenders. We see that the openness around regulators engaging
has created a more active conversation about what options are available and we look forward to
working with your office.
Please contact Daniel Swislow at [email protected] or by phone at (415) 763-7717
with any questions.
SQUARE CAPITAL, LLC
By: Jacqueline D. Reses
Manager
Enclosures
Confidential
Comments to SB 1235
Introduction
On December 4, 2018, Jan Owen, the Commissioner of Business Oversight, invited
stakeholders to provide input in developing regulations to implement SB 1235. Comments are
welcome on any area under which the Commissioner has rule-making authority, but the
Commissioner developed a series of questions addressing specific areas where rulemaking
may be appropriate, desirable, or necessary.
Square Capital appreciates having the opportunity to respond to the Commissioner’s
questions and raises two additional issues for the Commissioner’s consideration. Note that the
Commissioner’s questions have been reordered in this response.
Square Capital Overview
Square Capital, LLC has expanded access to small business financing through the
development of simple, flexible and transparent financial products. As a wholly owned
subsidiary of Square, Inc., Square Capital shares Square’s mission to design and build
technology tools that enhance a purpose of economic empowerment for the small business
community. Since inception, Square has strived to give its sellers
1
accessible, affordable tools to
grow their businesses and participate in the economy. Square Capital is a key component of
Square’s cohesive and seller-focused commerce ecosystem.
Square Capital’s primary business financing product is the “Flex Loan,” which is
designed to simplify access to commercial credit and streamline loan repayment so sellers can
focus on the critical task of running their businesses. Flex Loans have multiple features that set
them apart from other loan products:
● Square sellers that meet certain eligibility criteria are invited to apply for Flex Loans.
Eligibility is based on various seller attributes, including card processing history and
activity through Square. These attributes are regularly analyzed under a proprietary risk
model that creates a picture of a seller’s credit risk and renders eligibility decisions. This
data-driven process generates appropriately-sized offers and leads to high approval
rates and fast funding, with sellers receiving loan proceeds in as little as one business
day after application approval.
1
“Sellers” is Square’s term for merchants who accept card payments through Square.
Confidential
● Flex Loans are generally priced to reflect underlying risk as determined by the risk
model. A single upfront fee is assessed at the time of loan origination and added to the
Flex Loan balance. No other fees or interest are charged, and no penalties are
assessed. Sellers with a Flex Loan know the exact dollar cost of capital before
borrowing.
● A key feature of the Flex Loan product is its contingent repayment schedule. A fixed
percentage of daily card transactions processed through Square is applied to the Flex
Loan balance. After the fixed repayment rate is netted from each day’s transactions, the
remainder of the card sales (less card processing fees) is remitted to the seller.
● Because Flex Loan repayments are based on processing activity, faster processing
results in faster repayment and slower processing results in slower repayment. This
structure creates flexibility for sellers to pay based on their business health and helps
sellers match their repayments with their cash flows. This structure also creates an
alignment of interests between Square Capital and sellers.
● The convenience of the revenue-based repayment schedule is often one of the highest
seller-rated features of the product. Repayment aligns with sales volumes and requires
no action by sellers other than running the business as usual (subject to certain
minimum payment requirements described below). Sellers can see exactly how much is
paid toward the loan balance each day through their online Square Dashboard,
2
and
they receive payment summaries by email each day they process payments.
● Each Flex Loan has a targeted payback period reflective of the seller’s risk profile as
assessed by the risk model. These targets are generated at the offer stage and are a
key risk management tool for the Square Capital program. The actual repayment period
for each Flex Loan depends on the size and velocity of the seller’s post-origination card
sales but is typically aligned with the targeted term length.
● A minimum payment of 1/18th of the initial Flex Loan balance is due every 60 days, but
only to the extent payments resulting from card sales processed through Square have
not equalled or exceeded the minimum payment amount. Flex Loans also carry a final
maturity date of 18 months from the date of origination. Typically, daily card sales cover
minimum payments and fully repay the loan well before the 18-month contractual
maturity date.
The Flex Loan product has provided much-needed capital to an underserved community
of sellers for whom access to commercial credit is difficult or impossible. Since inception,
Square Capital has facilitated the financing of more than 500,000 plans to more than 200,000
unique sellers, totaling more than $3.5 billion in financing.
3
Based on an internal survey, 56% of
2
Square Dashboard is the interface (available on mobile and desktop devices) that gives sellers access to Square
tools to manage their daily business operations. Through the Dashboard, sellers can access advanced reporting
tools, send invoices, manage time cards and employees, and create marketing campaigns. Loan offers through
Square Capital are made available to eligible sellers in the Square Capital tab of the Square Dashboard.
3
Includes MCAs and loans through Square Capital between May 2014 and September 2018.
2
Confidential
loans through Square Capital went to women-owned businesses and 36% went to minority-
owned businesses.
4
Over 80% of loans originated through the Square Capital program are
made outside major metropolitan areas where small business loans are most needed.
5
Square Capital has leveraged technology and data to open up access to capital at
amounts far lower than what has been available to small businesses from traditional lenders.
With loan sizes starting at $500 and averaging approximately $6,000, Flex Loans have given
sellers the extra capital they need to make critical investments in their business, such as
purchasing inventory or equipment, hiring more employees, expanding stores or opening new
locations. This access is particularly important for smaller small businesses, the so-called
“micro” small businesses (which are generally defined as small businesses with less than
$100,000 in annual revenues), which have traditionally lacked access to sufficient financing.
6
Square Capital is committed to serving these traditionally underserved businesses.
* * *
The attached Appendix contains materials currently used for the Flex Loan product: a
copy of the Flex Loan agreement (Exhibit A), an image of the current Flex Loan offer page with
accompanying interactive tooltips (Exhibit B) and the Flex Loan application flow (Exhibit C).
These materials are periodically revisited, revised and refreshed based on various drivers, such
as seller feedback and product updates, but the current versions are attached to offer context
for these comments.
Types of Commercial Financing
The Commissioner invites stakeholders to provide examples of commercial
financing transactions subject to SB 1235 other than fixed-rate, fixed-payment financing.
Examples of such transactions may include those with variable interest rates, multiple,
flexible or contingent repayment options, merchant cash advances, open-end credit
plans, and recourse and nonrecourse factoring. What obstacles do stakeholders
anticipate in complying with SB 1235 with respect to such transactions, and how can the
Commissioner’s rules address those obstacles?
Square Capital Response
Example Financing Product
4
Based on an April 2018 survey of 6,397 respondents who have accepted a loan through Square Capital.
5
See “Goodbye, George Bailey,” The Wall Street Journal (Dec. 25, 2017) (“The financial fabric of rural America is
fraying. Even as lending revives around cities, it is drying up in small communities.”).
6
See Mills and McCarthy, “The State of Small Business Lending: Innovation and Technology and the Implications
for Regulation,” p. 6, Harvard Business School Working Paper 17-042, (2016).
3
Confidential
Flex Loans are an example of a commercial financing product that is subject to SB 1235
and does not have a fixed payment schedule, other than the minimum payment requirements
described above.
Anticipated Obstacles
Square Capital is a trusted partner to small businesses and brings simplicity,
accessibility, flexibility, and transparency to financial products to help them grow. Consistent
with that ethos, Square Capital already discloses the fixed items required by SB 1235 to sellers
who are eligible for a Flex Loan offer, i.e., the total amount of funds provided, the total dollar
cost of financing, the method and frequency of payments and a description of prepayment
policies. (See, e.g., Exhibits A and B.)
However, due to the contingent repayment feature of the Flex Loan product, certain
attributes of the Flex Loan are variable and cannot be determined with certainty at the time of
loan origination:
● The actual number of Flex Loan payments a seller will make
● The dollar amount of each payment a seller will make
● The actual date on which a Flex Loan will be repaid in full
● The actual annualized rate of a Flex Loan
Disclosing these variable items at the time of loan origination is the primary challenge to
Square Capital’s compliance with SB 1235 as applied to the Flex Loan product. The obstacles
Square Capital anticipates are discussed in detail below, together with suggestions regarding
how the Commissioner’s regulations can address these obstacles.
Disclosure of Method, Frequency, and Amount of Payments for
Commercial Financing with Flexible or Contingent Repayment
Obligations
Some types of commercial financing offer flexible or contingent repayment
obligations. The Commissioner suggests that stakeholders provide examples of these
types of commercial financing. How should providers disclose to the method, frequency,
and amount of payments required under such contracts?
Square Capital Response
Flex Loans are an example of commercial financing with contingent repayment
obligations, where the frequency, number and dollar amount of loan payments are determined
by the frequency, regularity and dollar amount of card sales processed through Square.
4
Confidential
For products like the Flex Loan, providers should disclose any contingent aspect of a
borrower’s repayment obligation as a narrative or description. This approach is particularly
important for compliance with Section 22802(4), which mandates disclosure of the “amount of
payments” required for a commercial financing product. The phrase “amount of payments” may
be interpreted as either the number of payments required under the financing contract or the
dollar amount of each payment, both of which present significant disclosure obstacles for
products like the Flex Loan. To illustrate:
● The number of payments required to repay a Flex Loan will depend on the dollar amount
of card sales processed each day after loan origination. A seller processing low-dollar
sales that only does business on weekdays may make more daily loan payments than a
seller processing high-dollar sales that only does business on weekends. The exact
number of payments required to repay any particular Flex Loan is dependent on future
revenues, which are unknown at the time of loan origination.
● Similarly, the dollar amount of each Flex Loan payment will depend on the dollar amount
of daily card sales processed after loan origination. A seller processing low-dollar sales
may make smaller daily loan payments than a seller processing high-dollar sales. The
specific dollar amount of each daily payment is contingent on daily sales and cannot be
known at the time of Flex Loan origination.
To account for uncertainties inherent in revenue-based payment structures, providers
should disclose any contingent repayment features of a commercial financing product using a
narrative or description.
Commercial Financing Requiring Estimated Term Disclosures
SB 1235 requires a provider to disclose the “term or estimated term” of the
contract. What commercial financing contracts may require an estimated term
disclosure, and why? The Commissioner suggests that stakeholders provide sample
contracts that may require an estimated term disclosure.
Square Capital Response
Providers offering commercial financing products with flexible or contingent repayment
obligations should disclose an estimated term.
Flex Loan borrowers, for example, repay their loans using a fixed percentage of their
daily card sales, which results in variability in the amount of time needed to repay the loan. An
estimated term is the most accurate disclosure that can be provided in this instance and is the
most transparent information available for sellers to make an informed financing decision.
For reference, the current Flex Loan agreement is attached to the Appendix as Exhibit A.
5
Confidential
Types of Financing Requiring Estimated Annualized Rates
SB 1235 requires the Commissioner to determine when a provider can disclose an
estimated annualized rate and how providers must calculate the estimated annualized
rate. What types of commercial financing will require estimated annualized rates, and
why?
Square Capital Response
Providers should disclose an estimated annualized rate for financing products, such as
the Flex Loan, that (a) impose any flat fee and (b) have flexible or contingent repayment
obligations. An estimate is appropriate because the amount and timing of payments are
required factors in calculating annualized rates, and those factors are designed to vary for such
products.
Flex Loan borrowers, for example, pay a single flat fee at loan origination and repay the
loan (and fee) through card sales. Converting the flat fee into an actual annualized rate would
require Square Capital to know the timing and amount of payments, which cannot be
determined at loan origination given the revenue-based repayment structure.
Annualized Rate Disclosure
The version of SB 1235 that was introduced on February 25, 2018 required an
annualized rate disclosure as an Annual Percentage Rate (APR) calculated according to
provisions of the federal Truth in Lending Act and Regulation Z. A later version required
a calculation called Annualized Cost of Capital (ACC). The proposed ACC disclosure
would have been calculated as follows:
(Total Dollar Cost of Financing ÷ Total Amount of Funds Provided) × 365 ÷ (Term
or
Estimated Term) × 100
SB 1235, as enacted, requires the Commissioner to select the appropriate method
to express the annualized rate disclosure. Should the Commissioner’s rules require APR,
ACC, or some other annualized rate disclosure? What are the benefits and drawbacks of
each annualized rate disclosure? If disclosing an annualized rate may confuse financing
applicants, what measures could the Commissioner require to reduce potential
confusion for that disclosure?
Square Capital Response
6
Confidential
The regulations should require the annualized rate to be calculated using the APR
calculation set forth in Regulation Z. Using the APR formula rather an alternative calculation has
several notable benefits:
● APR is a recognized standard of calculating the annualized rate disclosure.
● Other states may not recognize an alternative calculation, which may create
obstacles and risks for national financing programs.
● Using an alternative calculation may require an additional disclosure that
explains the difference between the alternative calculation and the APR
calculation, which may create or deepen borrower confusion.
● An alternative calculation may not provide long-term confidence with a
meaningful and clear disclosure. Such confidence comes with testing and
application over time.
● In the context of national programs that provide both consumer and commercial
products, using a single calculation method would be optimal.
Regardless of the equation used, disclosing an annualized rate may confuse some
financing applicants. A recent study conducted by economics professors from MIT, Princeton
University, and UC Berkeley with assistance from Square Capital revealed that business owners
surveyed make more mistakes when loan costs are quoted in terms of APR than when
borrowing costs are more plainly cited as dollars and cents.
7
The study further uncovered that a
lack of understanding around the definition of APR, such as which fees are included in the
calculation, can lead to confusion and mistakes when borrowing.
8
Disclosing an estimated
annualized rate may create even more confusion given the uncertainty inherent in any estimate.
Suggested measures to reduce potential confusion are discussed below under “Explanatory and
Qualifying Language in Connection with Estimated Terms and Estimated Annualized Rates.”
Fees and Charges Included in an Annualized Rate Calculation
What type of fees and charges should be included in an annualized rate
calculation? The Commissioner requests comments relating to fees and charges for
commercial financing types other than fixed-rate, fixed-payment financing.
Square Capital Response
The annualized rate calculation should include fees and charges payable by the
commercial borrower to the provider or lender that cannot be avoided by the borrower. Lenders
often charge business-financing borrowers interest and various fees, such as origination fees,
application fees, servicing fees, referral fees, wire-transfer fees, pay-by-check fees,
7
Bachas, Sraer and Thesmar, Understanding Borrower Demand for Revenue-Based Loans Evidence from a Survey
of Small Businesses, September 27, 2018.
8
Id.
7
Confidential
documentation fees and invoice factoring fees. To the extent borrowers are required to pay such
fees to the lender or provider, the fees should be included in the APR calculation along with any
applicable interest charges. However, fees that are contingent or avoidable, such as late fees or
returned-payment fees, should not be included in the APR calculation.
The only fee charged to merchants for Flex Loans is a one-time fixed fee assessed at
the time of loan origination. That fee should be included in the annualized rate calculation. If
Square Capital chooses to add a late fee requirement to the Flex Loan agreement in the future,
that late fee should not be included in the calculation because it would not be incurred if the
seller performs as required under the loan agreement.
Calculating Estimated Terms and Estimated Annualized Rates
How should providers calculate estimated terms and estimated annualized rates
for the various commercial financing transactions subject to SB 1235? For example, in a
commercial financing transaction with payments set as a percentage of a business’s
gross receipts, what calculation methodology for estimated term and estimated
annualized rate would provide the most helpful disclosure for a business with a recent
history of rising gross receipts?
Square Capital Response
Estimated Terms
In calculating estimated terms, providers facilitating products with flexible or contingent
repayment obligations should have leeway to use any formula or methodology that the provider
believes will generate a good faith estimate.
Having such flexibility would allow providers like Square Capital to leverage evolving
technology and apply new learnings and developments to the challenging process of estimating
term lengths. Projecting future revenues for small and micro businesses is particularly difficult
given seasonality and other factors, but Square Capital strives to develop and refine data-driven
predictive capabilities in order to serve this underserved population. Requiring a static formula
or methodology that cannot be adjusted or adapted may result in estimated term disclosures
that are not as accurate as they could be. For both greater accuracy in disclosure and
innovation, providers like Square Capital should be given flexibility to determine the
methodology that would best serve the needs of customers and promote fair disclosure.
Estimated Annualized Rate
An annualized rate using an estimated term should be calculated according to the APR
formula under Regulation Z, as suggested above under “Annualized Rate Disclosure.” The
resulting annualized rate will be an estimate given the estimated term used in the equation.
8
Confidential
Reliance Upon Internal Underwriting Criteria to Calculate Estimated
Terms and Estimated Annualized Rates
For certain products where disclosure of an estimated term and estimated
annualized rate may be appropriate, should the calculation methodology established by
the Commissioner require that provider to rely upon internal assumptions or calculations
the provider used to underwrite the transaction? For example, in a commercial financing
transaction with payments set as a percentage of a business’s gross receipts, should the
estimated term incorporate the provider’s internal calculation of the business’s future
gross receipts that the provider relied upon in underwriting the transaction? Why or why
not?
Square Capital Response
As noted above, providers should have discretion to calculate the estimated term (and
with that, the estimated annualized rate) using formulas or methodologies that the provider
believes will generate a good faith estimate. Providers should not be required to rely upon their
internal assumptions and underwriting calculations analytics if they do not (in the provider’s
view) assist in generating a good faith estimate.
Explanatory and Qualifying Language in Connection with Estimated
Terms and Estimated Annualized Rates
What explanatory and qualifying language should providers include when
disclosing estimated terms or estimated annualized rates? How can such language
minimize potential confusion for the financing applicant and assist the applicant in
understanding how the provider calculated the estimate?
Square Capital Response
Providers disclosing estimated terms and estimated annualized rates should clearly and
conspicuously communicate that such numbers are estimates and explain what factors would
cause the actual realized term lengths and annualized rates to differ from the estimates.
To mitigate merchant confusion and protect proprietary and confidential information, the
disclosures should not include detailed information about the formulas or models used to derive
the estimates. Rather, for a product like the Flex Loan, the disclosures should ensure that
borrowers understand the estimates are based on forecasts and explain how the performance
of the business impacts repayment speed, amount and timing.
9
Confidential
Given the uncertainties inherent in the variables used to calculate an estimated term,
explanatory language may not completely eliminate the potential confusion associated with
disclosing estimated term lengths and estimated annualized rates. Therefore, providers should
strive to explain estimated terms and annualized rates that avoid misleading, deceptive or
otherwise unhelpful language.
Tolerances
SB 1235 requires the Commissioner’s rules to “specify the accuracy requirements
and tolerance allowances” for estimated annualized rate calculations. What accuracy
requirements and tolerance allowances should the Commissioner establish, and why?
Square Capital Response
Accuracy Requirements
As discussed, the estimated annualized rate calculation for Flex Loans requires
forecasting the future, and as such, the accuracy requirements should focus on the
mathematical correctness of the calculation rather than the accuracy of the forecast of the
borrower’s future behavior.
The determination of estimated term should only be subject to the good faith standard
discussed under the heading “Estimated Term” above. Once the determination of estimated
term is made in good faith, it can serve as the basis for calculating the estimated annualized
rate. The accuracy requirements applicable to the estimated annualized rate disclosures should
only apply to the mathematical calculation of the annualized rate based on the estimated term,
not how the estimated term itself is calculated. For traditional lending products where all
required payments are known in advance, the only source of potential inaccuracy is the
mathematical calculation.
Accuracy Tolerances
Moreover, the accuracy requirements under SB 1235 should be no more onerous than
those set forth in Regulation Z. Regulation Z sets accuracy tolerances for annualized
percentage rates based on transaction type: “regular transactions” are allowed not more than
1/8 of 1 percentage point from the actual annual percentage rate, and “irregular transactions”
are allowed not more than 1/4 of 1 percentage point from the actual annual percentage rate. 12
CFR § 1026.22(a)(2), (a)(3). Regulation Z also relieves a creditor of liability for an error in
calculating the APR if the error was caused by a calculation tool used in good faith by the
creditor and the creditor takes certain steps after discovery of the error. 12 CFR §
1026.22(a)(1).
10
Confidential
Disclosure Formatting
SB 1235 authorizes the Commissioner to establish rules concerning the
formatting of disclosures provided to financing applicants. What, if any, of the
information that SB 1235 requires to be disclosed should the disclosure form(s) highlight
or prioritize? Should certain disclosures appear at the top of the form(s) in larger or bold
font, etc.?
Square Capital Response
Specific formatting requirements for the disclosures (i.e. highlighting, location, font
and/or formatting) should not be prescribed in the regulations.
Commercial financing providers are subject to the FTC Act and UDAP principles, which
guide and inform how providers conduct business with their applicants and borrowers. Square
Capital takes pride in designing user experiences that are simple, straightforward, transparent
and consistent with UDAP standards. Design-focused products like the Flex Loan offer a level of
clarity that can achieve the disclosure goals of SB 1235 while allowing for flexibility and
innovation in communicating with sellers. Applying a fixed set of formatting requirements to all
commercial financing products may introduce unintended obstacles in communicating unique
product-specific features and SB 1235 disclosures with clarity and simplicity. Accordingly, the
DBO should review providers’ compliance with SB 1235 on a product-level basis through a
UDAP lens rather than requiring providers to adhere to specific formatting requirements
applicable to all financing products.
In particular, the regulations should not require more prominent disclosure of the
annualized rate, as required for certain consumer transactions under Regulation Z. See, e.g., 12
CFR 1026.17(a)(2). For products like the Flex Loan with revenue-based payment structures and
fixed borrowing fees, emphasizing estimated annualized rates in a disclosure could distract from
key disclosures that are not estimates, such as the total borrowing cost of the loan. Flex Loan
sellers value knowing the exact dollar cost of capital before borrowing, and presenting an
estimated annualized rate more prominently than the dollar cost of financing could lead to
confusion.
Prepayment Policies
What types of prepayment policies and charges are common for different
commercial financing transactions subject to SB 1235? How are these policies and
charges characterized to customers today?
Square Capital Response
11
Confidential
Square Capital does not charge any fees for prepaying a loan originated through the
Square Capital program. This policy is disclosed throughout Square Capital’s customer-facing
materials and appears on the Flex Loan offer page within the description of the estimated term:
“Prepay anytime at no additional cost.” (See Exhibit A.)
Disclosures for Factoring and Asset-Based Lending Transactions
with Master Financing Agreements
SB 1235 allows providers of factoring and asset-based lending to provide
disclosures based upon an example transaction when the providers use agreements that
describe the general terms and conditions of the commercial financing transactions that
will occur under the agreements. What rules, if any, should the Commissioner establish
to clarify when disclosures based upon example transactions are permitted? What rules,
if any, should the Commissioner establish governing what example (i.e., financing
amount) the provider may use when drafting disclosures?
Square Capital Response
Square Capital does not provide a response to this question as Square Capital is not
currently a provider of factoring or asset-based lending products.
Definitions
SB 1235 defines terms relating to the commercial financing products that are
subject to SB 1235’s disclosures and entities that are exempt from making the
disclosures. Are additional definitions needed? For the terms already defined, are any
definitions unclear; and if so, why? Can the definitions be read to encompass
transactions, individuals, or entities not intended to be regulated by the disclosure
requirements? Does any definition result in ambiguity regarding whether a transaction,
individual, or entity is subject to the disclosure requirements?
Square Capital Response
Square Capital has highlighted in these comments various provisions in SB 1235 that
may prompt additional definition or clarification for purposes of drafting implementing
regulations. Square Capital looks forward to partnering with the DBO on identifying additional
areas where further clarification could benefit providers and merchants as the implementing
regulations take form.
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Additional Considerations Not Raised By The Commissioner’s Questions
Timing of Disclosures
Section 22802(a) of the bill indicates that disclosures shall be given to a recipient “at the
time of extending a specific commercial financing offer to that recipient.” Section 22804(a)(2),
however, directs the Commissioner to adopt regulations “concerning the time” for each
disclosure item set forth in Section 22802(b).
Providers should be permitted to fulfill their disclosure requirements by presenting the
required disclosures at the time the financing agreement is offered for signature. This would
promote clarity and transparency of all terms applicable to the financing offer by providing
potential borrowers with a single place and time where all details, including those in the
financing agreement, can be reviewed and signed prior to submission of an application.
Signature Requirement
Section 22802(a) requires providers to “obtain the recipient’s signature on [the]
disclosure before consummating the commercial transaction.” The regulations could enhance
this requirement by specifying that the disclosures (a) may be provided to the recipient in
electronic form (regardless of whether the recipient has consented to the E-Sign Act) and (b)
signed electronically by the recipient.
13
SQUARE CAPITAL, LLC
EXHIBIT A
Summary Box
Legal Business Name:
Doing Business As:
Business Address:
Location ID:
Applicant:
Loan Acceptance Date:
Origination Date:
Repayment Start Date:
Loan Maturity Date:
Prior Loan Balance:
Net Deposit Amount:
Loan Amount:
Total Borrowing Cost:
Loan Balance:
Repayment Rate:
Minimum Payment Amount: $XX.XX
Minimum Payment Due: On [first min due
date] and every 60th day thereafter
LOAN AGREEMENT
This Loan Agreement ("Agreement") is a contract between Merchant, Celtic Bank Corporation,
Square Capital, LLC, and Square, Inc. and is entered into on the Loan Acceptance Date set
forth above.
1. Definitions.
a. “Accepted Cards” means all US-issued or widely accepted non-US issued
credit, debit, prepaid, or gift cards with a card network logo, or such other
payment method deemed acceptable to Square, Inc.
b. “Applicant” means the individual executing this Agreement who has the legal
capacity and all necessary authority to bind Merchant to this Agreement.
c. “Bank” means Celtic Bank Corporation, including its agents and assignees, as
the originator and issuer of Your loan.
d. “Governmental Authority” means any federal, state, local, foreign or other
court, governmental department, commission, board, bureau, agency or
instrumentality.
e. “Linked Bank Account(s)” means any valid U.S. bank, debit card, or other
transaction account used for business purpose You have linked to Your Square
Account.
f. “Loan Acceptance Date” means the date You enter into this Agreement, and is
set forth in the summary box above.
g. “Loan Amount” is the dollar amount of funds extended to You by Bank, in the
amount specified in the summary box above.
h. “Loan Balance” is the total amount that You are obligated to repay and is equal
to the sum of the Loan Amount and the Total Borrowing Cost specified in the
summary box above.
i. “Loan Maturity Date” means the date, as specified in the summary box above,
Flex Loan Agreement 1
on which the outstanding Loan Balance is due and payable in full.
j. “Location ID” means a unique identifier established with Square, Inc.
k. “Merchant”, “You” or “Your” means the business identified by the Legal Business
Name, which may be further identified by the “Doing Business As” name above,
as related to a specific location and/or Square Account, as applicable.
l. “Minimum Payment Amount” means the amount specified in the summary box
above and is payable by the end of each sixty (60) day period beginning on the
Origination Date.
m. “Net Deposit Amount” means the net amount available and deposited to the
Linked Bank Account after deductions of the Prior Loan Balance (if applicable)
from your Loan Amount and is specified in the summary box above.
n. “Origination Date” means the date the Net Deposit Amount specified in the
summary box above is approved to be disbursed to your Linked Bank Account.
o.
“Parties” means, collectively, Merchant, Bank, Square Capital, and Square, Inc.
p. “Prior Loan Balance” means the amount in the summary box above deducted
from the Loan Amount to satisfy an existing prior loan or other amount due, with
respect to the Square Account associated with this Agreement, through the
Square Capital Program.
q. “Receivables” means the total amounts owed to the Merchant resulting from the
sales of goods and/or services through Accepted Cards in the ordinary course of
Merchant’s business.
r. “Repayment Rate" means the percentage of Receivables generated by
Merchant, as set forth in the summary box above that will be debited from Your
gross payment card processing amount each day You process payments
pursuant to the Seller Agreement and will continue to be applied to Your Loan
Balance until such Loan Balance is paid in full.
s. “Repayment Start Date” means the date Your repayment obligations begin and
is specified in the summary box above.
t. “Square Account” means, collectively, all Merchant accounts with Square, Inc.
that are identified with or used by Merchant in connection with the Location ID set
forth in the summary box above, including any other accounts added or linked
from time to time. Merchant may have multiple Square Accounts and such
accounts may have separate loans through the Square Capital program.
u. "Square Capital" means Square Capital, LLC, a subsidiary of Square, Inc., and
the servicer of Your loan, as agent on behalf of Bank and otherwise as agent of
Bank.
v. “Square, Inc.” means the processor of Your payment card transactions as
described in the Square General Terms of Service and any applicable Additional
Terms, as may be amended from time to time (the “Seller Agreement”).
w. “Total Borrowing Cost” means the one time flat fee assessed by Bank for
entering into this Agreement, in the amount specified in the summary box above.
2. Information About Your Loan.
Flex Loan Agreement 2
a. Extension of Credit. Bank is extending to You the Loan Amount and, in
exchange, You agree as follows:
i. Business Purpose. You acknowledge and agree that funds received
under this Agreement are for business purposes only and will not be
used for personal, family or household purposes. You understand
that You are not receiving a consumer loan, and that statutory and
regulatory protections for consumers will not apply to Your loan.
You also understand that Bank may not confirm whether the use of any
funds provided conforms to this section. You agree that a breach of this
section will not affect Bank’s right to (a) enforce Your promise to pay all
amounts owed under this Agreement, regardless of the purpose for which
the funds are in fact obtained, or (b) use any remedy legally available to
Bank, even if that remedy would not have been available had the funds
been provided for consumer purposes.
ii. Obligation to Repay. You agree (a) to repay the Minimum Payment
Amount on each Minimum Payment Due date and (b) to repay the Loan
Balance in full by the Loan Maturity Date. While You have an outstanding
Loan Balance, You direct Bank to direct Square Capital to direct Square,
Inc. to withhold the Repayment Rate from Your Receivables during each
day You process payments pursuant to the Seller Agreement and Square,
Inc. agrees to remit such funds to Square Capital. Your repayments
begin on the Repayment Start Date.
iii. Application of Repayments. Your repayments will generally be applied
first to the past due Loan Balance (if any), then to reduce the amount of
the remaining Loan Balance until the Loan Balance is paid in full.
iv. Minimum Payment Obligation. If at any time, You do not pay the
Minimum Payment Amount by the applicable Minimum Payment Due
date, the Bank through Square Capital reserves the right to debit Your
Linked Bank Account or increase Your Repayment Rate.
v. Satisfaction of Prior Loan Balance. In order to receive funds under this
Agreement, Bank will first apply the Loan Amount to repay any Prior Loan
Balance outstanding as of the Origination Date. The remaining Loan
Amount will be deposited to Your Linked Bank Account in accordance
with your ACH authorization (as described below).
vi. Early Repayment. You may repay Your outstanding Loan Balance in full
or in part at any time without penalty by making additional payments in
Your Square Dashboard, or contacting the Square Capital Support Center
to arrange for repayment. Such early repayment will be deducted from
Your Square Account balance first, and any remaining amount will be
debited from Your Linked Bank Account.
You may also repay Your outstanding Loan Balance in full or in part at
Flex Loan Agreement 3
any time without penalty by sending a check (with Your email address
associated with Your Square Account in the “Memo” field) to:
Square Capital Program
Attn: Capital Servicing
29053 Network Place
Chicago, IL 60673-1290
vii. ACH Authorization. You authorize Bank to credit Your Linked Bank
Account with Your Loan Amount (less any Prior Loan Balance) or where
otherwise required for servicing. If You decide to prepay Your Loan
Balance, or need to make payment to satisfy Your Minimum Payment
Amount or other amounts due under this Agreement, You authorize
Square Capital, as the Bank’s agent to debit any Linked Bank Account.
If
any debit attempt to Your Linked Bank Account fails, You grant Square
Capital at each instance a new, original authorization to make new debit
attempts in an amount less than the amount then currently due or an amount
reduced from the previous debit from Your Linked Bank Account.You
acknowledge and agree to be bound by NACHA’s rules for
business-related ACH debits and credits.
viii. Cancellation Period. You may cancel this Agreement any time prior to
the Repayment Start Date. If You cancel, Bank will debit the Loan
Amount from Your Linked Bank Account. Your loan will not be deemed
cancelled if the debit to Your Linked Bank Account is unsuccessful. If
You owe a Prior Loan Balance and You cancel this Agreement, You
agree that any Prior Loan Balance remains due and payable, and Your
prior loan agreement for the Prior Loan Balance will be reinstated
immediately.
ix. Security Interest.
1. For all Loan Amounts in excess of $75,000 as of the Loan
Acceptance Date, Merchant agrees that as security for (i)
Merchant’s obligation to pay the Loan Balance and (ii) Merchant’s
obligation to pay all other obligations and liabilities owed to Bank
by Merchant from time to time under this Agreement (collectively,
the “Secured Obligations”), Merchant grants, assigns and pledges
to Square Capital, as collateral agent on behalf of Bank a
continuing and unconditional lien on and security interest in and to
the following, whether now owned or hereafter acquired or arising
and wherever located (collectively, the “Account Collateral”): (a)
Merchant’s Square Account, the Receivables, all balances in such
Square Accounts; (b) all general intangibles (as that term is
defined in Article 9 of the Uniform Commercial Code as in effect in
the State of Utah), all payment intangibles, all rights to payment,
Flex Loan Agreement 4
and all other rights (whether arising under common law, statutes,
regulations, or otherwise), of the Merchant; (c) all money, cash
equivalents, and other assets of the Merchant; and (d) all of the
proceeds (as such term is defined in the applicable UCC) and
products, whether tangible or intangible, of any of the foregoing. In
furtherance of the intentions of the Parties hereto, this Agreement
will constitute written notice to all interested parties of Square
Capital’s (as collateral agent on behalf of Bank) security interest in
the Account Collateral. Merchant acknowledges and agrees that
so long as any of the Secured Obligations remain outstanding, the
Merchant’s Square Account will be under the sole dominion and
control of Square Capital. Neither Merchant nor any other person
or entity, acting by, through or under the Merchant, will have any
control over the use of, or any right to withdraw any amount from
such Square Accounts without the consent of Square Capital,
provided that Square Capital will be deemed to have granted such
consent until such time as the occurrence of a default under this
Agreement. In addition, Square Capital will have the exclusive
rights (i) to require that any bank or securities intermediary at
which any Account Collateral may be located acknowledge Bank’s
security interest in and control of the Account Collateral for
purposes of perfecting Square Capital’s security interest in the
Account Collateral, and (ii) to direct and provide instructions to
such bank or securities intermediary as to the disposition of the
Account Collateral to fulfill Merchant’s Secured Obligations. The
security interest created by this Agreement secures the payment
and performance of all of the present and future Secured
Obligations of the Merchant under this Agreement (including,
without limitation, reasonable attorney’s fees and expenses and
any interest, fees, or expenses that accrue after the filing of a
bankruptcy or other insolvency proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in such
bankruptcy or other insolvency proceeding) so long as any of the
Secured Obligations remain outstanding.
3. Termination and Default.
a. Termination of Agreement. Except as otherwise stated in this Agreement, this
Agreement will remain in full force and effect until the entire Loan Balance has
been repaid in full.
b. Events of Default. You will be in default of this Agreement if You:
i. Misrepresent a fact in Your loan application;
ii. Fail to comply with terms of the Agreement, including specifically but
without limitation, Your representations, warranties, and covenants at
Flex Loan Agreement 5
paragraph 6 below, as well as all other representations, warranties, and
covenants in this Agreement;
iii. Divert Your payment card processing from Your Square Account in
violation of this Agreement;
iv. File or become the subject of a bankruptcy or insolvency proceeding; or
v. Do not repay Your Loan Balance or any Minimum Payment Amounts
when due.
c. Rights upon Default. If You default, Square Capital may, upon written notice to
You, (i) demand immediate repayment of the Loan Balance, which will be paid by
You within five (5) business days of receipt of such demand, unless a longer
period is specified; (ii) debit any past due amounts from Your Linked Bank
Account; and/or (iii) temporarily or permanently increase Your Repayment Rate.
Bank may enforce the repayment of Your Loan Balance pursuant to the terms of
this Agreement, and in the instance of nonpayment of Your Loan Balance will
enforce those rights solely against Merchant’s business assets, including but not
limited to the property and interests described in Section 2(a)(ix) above. This
does not limit Your repayment obligations in this Agreement and Bank’s
enforcement rights.
d. Indemnification. Merchant will indemnify and hold harmless Bank and Square
Capital (and their respective employees, directors, agents, affiliates and
representatives) from and against any cost, loss or liability including interest,
penalties, reasonable attorneys' fees and expenses resulting from Your
misrepresentation or breach of warranty, default or breach of any covenant in this
Agreement.
e. Costs to Enforce Payable by Merchant. Merchant will pay all reasonable costs
associated with a breach by Merchant of any of its obligations, covenants or any
of the representations and warranties of Merchant under this Agreement and the
enforcement thereof. These “reasonable costs” include the costs, including
attorneys’ fees, associated with defending, protecting, or enforcing the rights
under this Agreement including in any bankruptcy proceeding.
4. Relationship of the Parties
a. Unaffiliated Parties. Square Capital and Bank are not affiliated.
b. Obligation to Provide Transactional Information. Merchant agrees to provide
to Bank and Square Capital, upon request, transaction files maintained by
Merchant, and any other information related to past payment processing volumes
or the transactions contemplated by this Agreement.
c. Further Inquiries. If Bank or Square Capital requires additional information You
will respond to those requests in the time frame requested.
d. Your Square Account.
i. Maintain Your Square Account in Good Standing. While You have an
outstanding Loan Balance, Merchant will comply with the Seller
Agreement and maintain Merchant’s Square Account in good standing.
Flex Loan Agreement 6
ii. Effect of Multiple Square Accounts. Any attempt to receive Your
payment card processing proceeds through multiple Square Accounts
(irrespective of whether such Square Accounts are associated with the
Location ID set forth in the summary box above) will entitle Square
Capital to consider any such Square Accounts as part of Your Square
Account for purposes of this Agreement. Square Capital may, at its
option, (i) provide You with notice that such additional Square Accounts
are now considered part of Your Square Account under this Agreement
and apply the Repayment Rate to such consolidated Square Account or
(ii) exercise its other remedies under this Agreement.
iii. Effect of Square Ceasing to Withhold Loan Payments. Under
contractual obligations that Square Capital has and may have with
various third parties, Square Capital may be prevented from withholding
the Repayment Rate from Your Receivables as described in Section
2(a)(ii) while You have an outstanding Loan Balance under this Loan
Agreement. Such an event may result in the assignment or transfer of the
servicing of this Agreement and Square Capital’s rights and remedies
under this Agreement without prior notice to You. If servicing is
transferred, You agree (i) to make equal weekly payments via debit to a
bank account or other means (which amount equals the remaining Loan
Balance divided by the number of weeks through the Loan Maturity Date)
to the designated service provider if loan repayments are no longer
withheld, (ii) to comply with alternative payment timing, instructions and
methods as provided by the new service provider and to execute any
necessary authorization in order for such payments to be made, and (iii)
that any new service provider is authorized to make any such debit to
Your bank account. If alternative payment timing, instructions and
methods are required, You will be provided with reasonable notification of
those requirements, including a statement reflecting Your outstanding
Loan Balance and weekly payment amount, to be delivered within a
reasonable time.
5. Consent for Electronic Signatures; Additional Communications.
a. Electronic Signature. In order to receive the Loan Amount, Bank must provide
You certain disclosures required by law. By submitting Your application and
agreeing to the terms of this Agreement, which You collectively adopt as Your
electronic signature, You consent and agree that:
i. Bank can provide all disclosures required by law and other information
about Your legal rights and duties to You electronically, including by
e-mail, a Website portal or mobile phone application.
ii. Your electronic signature on agreements and documents has the same
effect as if You signed them in ink and is evidence of Your intention to be
bound by this Agreement.
iii. Electronic disclosures have the same meaning and effect as if You were
Flex Loan Agreement 7
provided paper disclosures.
iv. Disclosures are considered received by You within 24 hours of the time
posted to Bank’s website, or within 24 hours of the time emailed to You
unless Bank receives notice that the email was not delivered.
v. Bank reserves the right to cancel this electronic disclosure service,
change the terms of use of this service or send disclosures in paper form
at any time.
vi. Bank is responsible for sending notice of the disclosures to You
electronically, but Bank is not responsible for any delay or failure in Your
receipt or review of the email notices.
b. Access to Disclosures. You understand that in order to access and retain the
electronic disclosures You will need the following:
i. A computer or mobile device with Internet or mobile connectivity.
ii. For desktop website-based Communications:
1. Latest web browser that includes 256-bit encryption.
2. The browser must have cookies enabled. Use of browser
extensions may impair full website functionality.
3. Minimum recommended browser standards are Mozilla Firefox
latest version (see http://www.mozilla.com for latest version),
Apple Safari latest version (see http://www.apple.com/safari for
latest version), or Chrome latest version (see
http://www.google.com/chrome for latest version).
iii. For mobile-based Communications:
1. A latest device operating system that supports text messaging,
downloading, and applications from the Apple App Store or
Google Play store; and
2. The latest version of Safari or Chrome on iOS or the latest version
of Chrome for Android.
iv. Access to the email address used to create your Square Account.
v. Sufficient storage space to save Communications and/or a printer to print
them.
vi. Use of spam filters may block or re-route emails from senders not listed in
your email address book.
c. Confirmation. You agree and confirm that You have access to the necessary
equipment to receive, access and print any disclosures that may be provided in
electronic form.
d. Withdrawal. You will not seek to withdraw Your consent for electronic signature
and disclosures while You have an outstanding Loan Balance.
e. Additional Communications. You consent to accept and receive
communications from Bank and Square Capital, including e-mail, text messages,
calls, and push notifications to the cellular telephone number You provide. These
non-telemarketing communications may be generated by automatic telephone
dialing systems which will deliver pre-recorded messages, including for the
Flex Loan Agreement 8
purposes of secondary authentication, receipts, reminders and other notifications.
Standard message and data rates applied by Your cell phone carrier may apply
to the text messages Bank or Square Capital sends You. You may only opt-out of
receiving text message communications by replying STOP to text messages.
6. Merchant Covenants. Merchant irrevocably agrees that while there is an outstanding
Loan Balance, Merchant will:
a. Card Acceptance. Not take any action to discourage use of Accepted Cards as
payment for Merchant transactions or permit any event to occur that could have
an adverse effect on the acceptance, authorization or use of Accepted Cards by
purchasers of Merchant's products and/or services, with the exception that
Merchant may impose any charge on credit card transactions permitted by the
applicable card associations’ rules and regulations;
b. Conduct of Business. Maintain Merchant’s business, including using Square,
Inc. services to process payment card transactions, in substantially the same
manner as it exists as of the Loan Acceptance Date. Merchant will conduct its
business under the same name and in a manner consistent with past practice
unless Merchant provides prior written notification to Square Capital and will
prevent the diversion of Your Receivables to any other processor. Merchant will
not cause, either by direct action or inaction, the dollar amount of Receivables
processed through its Square Account to be diverted to another processor. In any
thirty (30) day period Merchant will process Receivables with Square, Inc. at no
less than fifty percent (50%) of the monthly minimum dollar amount of
Receivables in the twelve (12) months immediately prior to such period.
c. Control of Business. Not allow another person or company, including without
limitation a franchisor company (if Merchant is a franchisee), to assume or take
over the operation and/or control of Merchant's business or business location,
whether physical or virtual;
d. Sale of Business. Not sell, dispose, convey or otherwise transfer any of
Merchant’s business or assets (other than in the ordinary course of business);
and
e. Cooperation. Cooperate fully with Square Capital to take all necessary actions
to effectuate each of Merchant’s obligations in this Agreement, including but not
limited to signing any and all documents Bank or Square Capital deems
necessary and furnishing Bank or Square Capital with such information (including
updated financial statements) as Bank or Square Capital may reasonably request
from time to time.
7. Merchant Representations and Warranties. Merchant represents and warrants that as
of the Loan Acceptance Date and until full repayment of Loan Balance:
a. Capacity. The Applicant executing this Agreement is authorized on behalf of
Merchant to do so, is at least eighteen (18) years of age and has the legal
capacity and all necessary authority to bind Merchant to this Agreement;
b. Third Party Interest in Receivables. Merchant’s Receivables (i) have not and
will not be sold as of the Loan Acceptance Date and until full repayment of Loan
Flex Loan Agreement 9
Balance, and (ii) are not subject to any claims, charges, liens, restrictions or
security interests where the third party holding a security interest in Merchant’s
Receivables is currently exercising its remedies;
c. Approvals and Taxes. Merchant possesses and is in compliance with all
permits, licenses, approvals, consents and any other authorizations necessary to
conduct its business. Merchant is in compliance with, and the execution of this
Agreement and consummation of the transaction contemplated in this Agreement
will not conflict with (i) any and all applicable federal, state and local laws and
regulations, (ii) any agreements to which Merchant is a party, and (iii) Merchant's
articles or certificate of incorporation, bylaws, or other organizational documents.
Merchant possesses all requisite permits, authorizations and licenses to own,
operate and lease its properties and to conduct the business in which it is
presently engaged. All federal, state, local and foreign tax returns and tax
reports, and all taxes due and payable that are required to be filed by Merchant
have been or will be filed and paid, on a timely basis (including any extensions).
All such returns and reports are and will be true, correct and complete. Merchant
has no material liabilities and, to the best of its knowledge, knows of no material
contingent liabilities, except current liabilities incurred in the ordinary course of
business;
d. Conflicts With Other Agreements. Merchant will comply with the provisions of
this Agreement and its performance under this Agreement does not and will not
conflict with other agreements to which Merchant is a party or beneficiary, or
result in any of the following: (1) violation or default of other agreements; (2)
entitlement of any person or entity to receipt of notice or right of consent; (3) a
right of termination, cancellation, guaranteed rights or acceleration of any
obligation or to loss of a benefit; or (4) creation of any claim on the properties or
assets of Merchant;
e. Authorization. Merchant has the power and authority to enter into and perform
Merchant's duties and obligations under this Agreement and any documents
required to facilitate the transactions contemplated by this Agreement. Merchant
is not a party to any contract or aware of any existing situation that would prevent
Merchant from entering into or performing its obligations under this Agreement.
Merchant has taken all necessary action to authorize their respective execution
and delivery of, and performance under, this Agreement;
f. Other Proceedings and Bankruptcy. There is no action, suit, claim,
investigation or legal, administrative, or arbitration proceeding pending or
currently threatened whether at law or in equity or before any Governmental
Authority against Merchant. Merchant has not declared bankruptcy within the
past seven years and is not currently contemplating the filing of a bankruptcy
proceeding or closing or materially modifying Merchant's business. Merchant is
solvent and financially capable of fulfilling its obligations under this Agreement;
g. Good Standing. Merchant is validly existing and in good standing under any
applicable laws of its state of organization. Merchant has all requisite power and
Flex Loan Agreement 10
authority to own, lease, pledge and operate its properties and assets and to carry
on its business as presently conducted;
h. Compliance With Laws. Merchant is in compliance with all statutes, rules,
regulations, orders or restrictions of all applicable Governmental Authorities. All
federal, state, local and foreign tax returns and tax reports, and all taxes due and
payable arising therefrom required to be filed by Merchant have been or will be
filed and paid, on a timely basis (including any extensions). All such returns and
reports are and will be true, correct and complete. Merchant has no material
liabilities and, to the best of its knowledge, knows of no material contingent
liabilities, except current liabilities incurred in the ordinary course of business;
and
i. Loan Purpose. Merchant is applying for credit solely for business purposes and
not for personal, family or household use. Any credit extended under this
Agreement, including the Loan Amount, is solely for business purposes and not
for personal, family or household use.
8. Disputes.
a. Binding Individual Arbitration. You, Bank, Square Capital and Square, Inc.
agree to arbitrate all disputes arising under or in connection with this Agreement
by a neutral arbitrator who has the power to award the same damages and relief
that a court can. ANY ARBITRATION UNDER THIS AGREEMENT WILL ONLY
BE ON AN INDIVIDUAL BASIS; CLASS ARBITRATIONS, CLASS ACTIONS,
REPRESENTATIVE ACTIONS, AND CONSOLIDATION WITH OTHER
ARBITRATIONS ARE NOT PERMITTED. YOU WAIVE ANY RIGHT TO HAVE
YOUR CASE DECIDED BY A JURY AND YOU WAIVE ANY RIGHT TO
PARTICIPATE IN A CLASS ACTION AGAINST BANK, SQUARE CAPITAL,
OR SQUARE, INC. OR ANY OF THEIR RESPECTIVE ASSIGNEES OR
AGENTS If any provision of this arbitration agreement is found unenforceable,
the unenforceable provision will be severed, and the remaining arbitration terms
will be enforced (but in no case will there be a class arbitration). All disputes will
be resolved finally and exclusively by binding individual arbitration with a single
arbitrator administered by the American Arbitration Association (www.adr.org)
according to this Section and the applicable arbitration rules for that forum. The
arbitrator will be responsible for determining all threshold arbitrability issues,
including issues relating to whether this Agreement is unconscionable or illusory
and any defense to arbitration, including waiver, delay, laches, or estoppel. The
Federal Arbitration Act, 9 U.S.C. §§ 1-16, fully applies. Any arbitration hearing will
occur in San Francisco, California or other mutually agreeable location. The
arbitrator’s award will be binding on the parties and may be entered as a
judgment in any court of competent jurisdiction. For any dispute against Bank,
Bank will pay all the arbitration fees. For any dispute against Square Capital or
Square, Inc., Square Capital or Square, Inc. will pay all the arbitration fees.
If You
prevail on any claim for which You are legally entitled to attorney’s fees, You may
seek to recover those fees in the arbitration. For any claim where You are seeking
Flex Loan Agreement 11
relief, Bank and Square Capital will not seek to have You pay Bank, Square Capital,
or Square, Inc.’s attorney’s fees, even if fees might otherwise be awarded, unless the
arbitrator determines that Your claim was frivolous. For purposes of this arbitration
provision, references to You, Bank, Square Capital, and Square, Inc. also include
respective subsidiaries, affiliates, agents , employees, predecessors, successors
and assigns as well as authorized users or beneficiaries of the Square Capital
Program. Subject to and without waiver of the arbitration provisions above, You
agree that any judicial proceedings will be brought in and You consent to the
exclusive jurisdiction and venue in the state courts in the City and County of San
Francisco, California, or federal court for the Northern District of California.
b. Governing Law. This Agreement is governed by Utah law and/or applicable
federal law (including the Federal Arbitration Act) as applied to agreements
entered into and to be performed entirely within Utah, without regard to its choice
of law or conflicts of law principles that would require application of law of a
different jurisdiction.
c. Limitation on Time to Initiate a Dispute. Unless otherwise required by law, an
action or proceeding by Merchant relating to any dispute arising under this
Agreement must commence within one year after the cause of action occurs or
becomes enforceable.
9. Miscellaneous.
a. Modifications; Amendments. Any changes to these terms will be in writing
agreed by the party to be affected.
b. Waiver. No Party will be treated as having waived any rights by not exercising (or
delaying the exercise of) any rights under this Agreement.
c. Notices. Except as otherwise stated, notices to Bank or Square Capital must be
sent by postal mail to: Square Capital Program, 1455 Market Street, Suite 600,
MSC 715, San Francisco, California 94103.
d. Assignment. You may not assign or transfer Your rights or obligations under this
Agreement, but rights of Bank and/or Square Capital may be assigned by Square
Capital and/or Bank without restriction.
e. Severability. If any provision of this Agreement is deemed invalid or
unenforceable under any law, rule, or regulation, the remainder of the Agreement
will remain in effect.
f. Complete Agreement. This Agreement constitutes the entire Agreement
between the Parties related to this subject matter and supersedes any prior
agreements or understandings between the Parties.
g. Survival. The obligations in Sections 3(d) (Indemnification), 3(e) (Costs to
Enforce Payable by Merchant), 8 (Disputes) and this Section 9 (Miscellaneous)
will survive any expiration or termination of this Agreement.
h. Register. You agree that Square Capital, on Your behalf, will maintain a register
in order to, record the amount of Your Loan Balance and the current or future
owner of Your loan (including any assignee, participant or transferee, if any, who
becomes the subsequent owner of any portion of Your Loan Balance) (the
Flex Loan Agreement 12
“Register”). The Parties agree that the entity whose name is recorded in the
Register as the current owner of Your Loan Balance is treated as the owner of
Your Loan Balance. The Register must be updated for any transfer of ownership
of Your Loan Balance to occur.
Flex Loan Agreement 13
SQUARE CAPITAL, LLC
EXHIBIT B
SQUARE CAPITAL, LLC
EXHIBIT C
