Square is using its data to give working capital to retailers.

Square, the mobile payments startup launched by Twitter co-founder Jack Dorsey, has officially launched a new service where the company will use data from merchant transactions to offer cash advances to businesses.

The loans will be paid back through a 10% surcharge on transactions. A typical loan from Square Capital is about $10,000, and the repayment will total around $11,000.

The new service, called Square Capital, is an innovative way to help small businesses increase capital to grow and expand. Faryl Ury, spokesperson for Square, told Bank Innovation that Square strives to make complex problems — like raising capital and transactions — easier, simpler, and more flexible for small business.

Square recently completed a four-month pilot of the program involving “thousands of merchants,” the company said.

Here’s how it works. Square uses its extensive data compiled through transactions via its reader and other products to determine how much to lend to merchants, and at what point in their business cycle. Square then approaches the merchants and notifies them that, if they are interested, Square can lend them a certain amount of money, and merchants can have access to it as soon as the next business day. There’s no set repayment schedule or even a monthly bill – Square makes the money back through transactions made by the merchants.

The reason Square doesn’t have a strict repayment schedule is because small businesses don’t typically have the same predictability as bigger, more established, businesses. By offering repayment through credit card transactions, Square is making the process of loan repayment an afterthought.

The process of acquiring capital can be long and tedious, filled with hours of paperwork. Square Capital requires little work from merchants and, in another effort to simplify the process, charges a fixed fee instead of tying the loan to an interest rate.

Square uses its transaction history to determine which business to lend to and how much. A merchant’s length of time with Square is important as well, since more history means more data. Square said during its pilot program, which began in February, it worked with thousands of merchants and extended tens of millions of dollars.

Small businesses, long underserved by financial institutions, are entering a golden age where data-driven companies such as Square can tailor products to suit their needs and make managing the financial side of the business easier.