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Shares in payment provider Square Inc. fell Friday at the fastest clip since the company's initial public offering, a day after the firm reported deepening losses and slow growth in its lending business.

Square's shares fell as much as 20% Friday before recovering slightly. In afternoon trading, Square shares were down about 18%.

The San Francisco company run by Twitter Inc. co-founder and Chief Executive Jack Dorsey said it posted a first-quarter loss of $96.8 million, wider than its year-earlier loss of $48 million.

Excluding costs like taxes and stock compensation, the loss of $9 million was less than the $20 million in the first quarter of 2015. The company said it planned to earn $14 million on that adjusted basis for the full year.

Square is best known for the white devices it sells to small businesses to accept and process payments, but the company has recently been investing in ancillary services like loans. But that unit, Square Capital, reported loan growth of just 4% compared with the fourth quarter of 2015.

BTIG analyst Mark Palmer said in a research note that the small increase in loan volume was "a source of concern" and said the delay in signing up new investors for Square Capital's loans "likely raised a few eyebrows among shareholders."

The company said "more challenging credit-market conditions" were a reason for the slow growth, as two new, unnamed investors delayed their purchases of Square Capital credits.

Square finance chief Sarah Friar said on a conference call with analysts Thursday that lending is a good business for Square to be in. Unlike competitors that have to spend a lot of money upfront to find borrowers and get them to apply, Square already has a large base of potential small-business customers that use its payments service.

"There is still tremendous demand [for Square loans] and I think we're only beginning to scratch the surface of what's available to us," she said.

Nevertheless, some analysts questioned that as a long-term strategy. Gil Luria of Wedbush Securities called Square Capital a "risky growth engine" that "significantly amplifies an already highly cyclical growth profile."

On Deck Capital Inc., another online small-business lender, also reported a drop-off in investor demand for its loans in the beginning of the quarter, causing its shares to plunge by nearly a third in value on Tuesday.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

May 06, 2016 14:45 ET (18:45 GMT)

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