SQ Block Inc

By Peter Rudegeair 

Coronavirus is causing big pains for companies that cater to small businesses.

Payments processors, lenders and other service providers to small, bricks-and-mortar firms are bracing for a slowdown as the fallout from the pandemic hits many of their customers, especially retailers and eateries. New York, New Jersey and other states ordered the closure of bars, restaurants, gyms and other businesses to foot traffic to try to slow the spread of the coronavirus.

Shares in Square Inc., whose payment devices are ubiquitous at coffee shops and beauty salons, fell nearly 29% on Monday, their largest one-day drop on record. They fell another 12% on Wednesday to $39.50.

Square makes the bulk of its revenue on fees based on the transaction volume at its small-business customers, which could suffer as more consumers spend less time outside their homes. In-store discretionary spending accounts for about $3 of every $5 in payments that Square processes, according to analysts at Bernstein Research. Square also earns fees on hundreds of millions of dollars of loans it makes to small businesses every quarter and sells to outside money managers, a business that is under threat if its customers can no longer qualify for credit.

Since the end of February, Square's market value has been roughly cut in half.

Shares in online small-business lender On Deck Capital Inc. fell 37% on Wednesday to 66 cents, their worst one-day drop ever.

Since the start of the week, On Deck shares are down 61%.

On Deck collects interest on a $1.3 billion portfolio of small-business loans and earns fees on new loans it extends, two sources of revenue at risk if its customers have a reduced appetite for credit and a reduced ability to make their existing loan payments.

Even companies that help small businesses sell goods online have fallen out of favor with investors. Shares in PayPal Holdings Inc., which processes payments for 24 million online merchants, declined nearly 16% Monday to $92.72. That was their steepest one-day drop since spinning out of eBay Inc. in 2015, and shares were down another 6.6% on Wednesday.

PayPal told investors in late February that it expected first-quarter revenue to increase by 1 percentage point less than it had previously forecast because of less cross-border e-commerce activity. It also has a $2.6 billion portfolio of small-business loans on its books that could come under stress if the economy weakens further.

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

(END) Dow Jones Newswires

March 18, 2020 19:40 ET (23:40 GMT)

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