Jack Dorsey's payment company Square is venturing into small business lending.

The San Francisco-based payments company--known for a plastic attachment that can transform a merchant's smartphone into the equivalent of a cash register capable of accepting credit cards--announced Thursday it would make loans available to its customers via a fast online application process.

It's a risky bet for Square, which went public in November at well below its expected offering price, because the luster of online lending has worn off in recent months, at least for public companies in the sector. The risk could well prove worthwhile though, given that products that digress from Square's traditional transaction processing have been bright spots for the company, according to its public filings.

In a blog post, Square said it was partnering with Celtic Bank, of Salt Lake City, Utah, to make the loans. The financing will be available for a fixed fee of between 10 percent and 16 percent of the amount borrowed, the company said. Borrowers pay back their loans through a 9 percent to 13 percent cut of their transactions, and must do so within 18 months. 

Square has offered merchant cash advances for several years to its small business customers. Both the loans and merchant cash advances are for a fixed dollar amounts, and repayable through future transactions, but the cash advances do not have an early repayment option, whereas the term loans do, a Square representative said.

Square reports extending $400 million of cash advances to 70,000 merchants as of year-end 2015, and has seen revenues from its cash advance products increase precipitously. The company does not break out those revenues from those of other parts of the business, but in filings with the Securities and Exchange Commission includes them as the majority of its software and data product revenue. Revenue for that segment grew nearly five-fold to $58 million in 2015, from $12 million in 2014, according to Square's most recent annual report. By comparison, the company's $1 billion in 2015 transaction revenue grew at a comparatively slower 50 percent over the same time period. 

Square's announcement comes at a time of significant retrenchment for two of the most prominent companies in online lending, OnDeck and Lending Club. Both have seen their stock prices knocked down in recent months as investor enthusiasm for the sector has slackened. Lending Club's stock has decreased nearly 60 percent from its 52-week high, and was trading at $8.32 by mid-morning on Friday. OnDeck's stock has fallen 65 percent from its 52-week high to $7.62. 

By comparison, Square's stock is down about 15 percent from a high of $14.78 the day of its IPO. Its stock was up 2.7 percent to $12.93 by midday Friday.

Like other online lenders, Square says it will package the loans and resell them to hedge funds and other investors.

Square competitor Paypal, the payments company founded by Peter Thiel, Elon Musk, and Max Levchin, began offering working capital loans to its small business customers in 2014. Its repayment terms are a fixed fee based on a sliding percentage of a merchant's daily sales.