Despite its back-burner IPO plans and revenue issues, Square is still staying in the game with its latest initiative that will offer cash advances to merchants.

It sounds controversial. The newly launched Square Capital, an off-shoot of the mobile payment company, will lend its customers capital in return for a fraction of future sales plus a fixed cost, according to source Re/code.

Square hasn’t actually come out with an official statement on this venture, however Re/code says that the company is pilot-testing Square Capital and obtained emails sent by Square to small business owners, outlining the initiative.

Image via Shutterstock.

Reportedly, in one of its emails about Square Capital, Square offered a business a $7,300 loan and said it would charge the business an additional $1,022--an added cost of 14 percent. The total amount the business owner would owe Square in such a situation would be $8,322.

The rest of the details are scant on this news, and while this seems like an option for merchants who otherwise can’t get funding by traditional means  -either due to bad credit or other reasons – the lack of information means  people should approach with caution.

What are businesses really signing up for? Are there set payment terms? What if a business’ cash flow is low? Would the term of the loan take too long to pay off? There is a lot of fine print jargon missing, and while Square is mum on the new plan, we can expect some sort of marketing campaign or official declaration on the matter.

Let's face it, small-business owners remain uncertain about what 2014 holds for their business and the economy. In fact, in its latest report the National Federation of Independent Business confirms that small-business optimism remains relatively low. Square caters to the smaller business who otherwise cannot deal with the red tape that is associated with traditional merchant accounts, and while this type of loan is tempting, the uncertainty would leave many businesses wondering if the decision was a good one or bad one.

Money still isn't falling off trees these days for small businesses, and the lending seas can be a challenge to navigate. Although you need funding, you want to make sure your deal is better than the one offered by the neighborhood loan shark. This new idea from Square can go one of two ways, so keep watching this space for news as it happens.