American Express Small Business Loans: What Are Your Options?

If you were to open up your wallet, odds are you’d find an American Express credit card (or business credit card) tucked into a fold.

As a consumer in the United States, you know American Express as one of the biggest credit card issuers in the world.

But as a small business owner, what do you know about American Express’s small business loans?

What do they offer? Would any of the American Express small business loans be a fit for your business?

Here’s everything you need to know about American Express business loans.

American Express Small Business Loans: What They Have to Offer

You might think of American Express as only a credit card issuer—offering personal and business credit cards.

However, for the right kind of business owner, American Express offers more than just credit cards.

In 2011, American Express launched their small business financing program, offering working capital to small business owners who need more funds than what they can get from their business credit cards.

This American Express small business loan is specifically called American Express Merchant Financing.

Here are the ins-and-outs to this American Express small business loan.

American Express Merchant Financing: How Does It Work?

When you hear “Merchant Financing,” the first type of financing that pops into your head is likely a merchant cash advance.

While the concept is similar, this American Express small business loan isn’t actually a merchant cash advance—it’s fully a commercial loan.

A merchant cash advance, on the other hand, isn’t technically a “business loan.” That’s because, with this type of financing, merchant cash advance companies (not lenders) are purchasing or discounting the value of your credit and debit card sales. You pay the merchant cash advance company back by letting them take a fixed percentage from your daily credit and debit card sales.

Again, American Express Merchant Financing is set up differently than a merchant cash advance.

With the Merchant Financing program, American Express is essentially providing qualified merchants (more on what counts as “qualified” to come) with unsecured business loans.

There are two types of American Express small business loans under their Merchant Financing program: short-term loans and settlement advance loans (which is no different than any type of “advance funding”).

The value of any type of American Express business loan, though, is mostly based on all your historical credit card and debit card receivables each month. While American Express isn’t purchasing your credit and debit card receivables, they will pull repayment for the loan from your American Express credit and debit card receivables.

American Express Short-Term Loans: Term, Amount, Fees, and Repayment

Let’s get into the details of the first of the American Express small business loans.

What does the short-term loan look like?

Loan Terms & Amounts

American Express small business loans under the Merchant Financing program are offered over either a one- or two-year term.

American Express small business loans with a one-year term offer loan amounts from $5,000 to $2 million, based on general business performance and how much your business brings in with card receivables. (If you’re approved for a loan of $35,000 or less, you might need to sign a personal guarantee on the financing.)

American Express also offers a two-year term loan that’s structured similarly to their one-year counterpart. A two-year term loan offers anywhere from $36,000 to $2 million in financing. With both types of shorter-term loans, American Express disburses the loan all at once.

Loan Fees

American Express small business loans actually don’t come with “interest rates” in the traditional sense.

Instead, you pay a fixed financing fee upon taking on the loan. This fee is only calculated once when you take on the business loan.

For the one-year term loan, the factor fee could range from 6% to 14%.

For the two-year term loan, the factor fee could be between 12% and 28%.

To see what you’re paying on these American Express small business loans, always calculate your APR. Considering that both products have factor rates that range from 1.06 to 1.28, the effective APR for both loans could be anywhere between 11% and 27%.

Loan Repayment

Once you’re given one of these American Express small business loans, how do you repay the financing?

Well, American Express will tap into your credit and debit card receivables to collect repayment for the loan they extended.

There are a few different ways to repay the loan. The first option is to have American Express set up a lockbox, meaning that all of your credit card transactions get deposited into a bank account that American Express controls. Each day, they go into that lock box and deduct a certain percentage of your credit card profits, sending the remainder that you’re owed back to your business’s bank account.

Another way to repay the business loan is have American Express partner with your payments processor. With this option, the payments processor does the work: They deduct a percentage of each credit card transaction to send to American Express (along with the usual transaction fees they take). Once repayment and transaction fees are processed, the rest of the transaction amount gets routed to you.

Or, if you have a loan amount that’s greater than $35,000, American Express could collect payment by deducting a percentage of all your American Express transactions.

And finally, American Express could withdraw a fixed amount of repayment from your business bank account each day via ACH (only if your business has a one-year loan below $150,000).

The way you repay your American Express term loan can be decided with an American Express representative.

It’s also important to note that American Express small business loans come with a discount if you can pay the issuer back early.

If you repay within 180 days (for the one-year loan) or 360 days (for the two-year loan), you’ll get a 25% rebate of the remaining balance. The rebate gets smaller the longer it takes for you to repay. So if you repay within 270 days (for the one-year loan) or 540 days (for the two-year loan), that rebate is only 10% of the remaining balance.

All in, if you can repay your American Express small business loan earlier than expected, it’s worth doing so.

American Express Settlement Advances: Term, Amount, Fees, and Repayment

Another type of American Express small business loan offered under the Merchant Financing program is their Settlement Advance.

The American Express Settlement Advance is a shorter-term small business loan, intended to help businesses manage cash flow on a monthly basis.

With this financing product, American Express advances you a certain amount of money each month, and you repay the principal and a fee over the course of the month.

Loan Terms & Amount

American Express again uses your historical credit and debit card receivables each month to determine the amount they’re willing to advance you. However, they set a range of $10,000 to $1 million in amounts.

The “term” of your Settlement Advance is technically a year.

You’re offered a one-year agreement, which is automatically renewed after the first year unless you give 60 days notice that you’re planning on terminating your advance. (There’s no early termination fee if you don’t want to continue the financing.)

However, American Express disburses the financing in monthly installments. You choose the day of the month that you want the cash deposited into your business bank account. Each month, American Express reevaluates your past behavior repaying the advance before depositing your next month’s advance into your bank account.

Loan Fees

Again, American Express doesn’t charge traditional interest on this product.

Instead, they charge a factor fee of anywhere from 0.5% to 0.67% on the principal they advance you each month.

When you think of this charge in terms of factor rates on an annual basis, you’ll end up paying a factor rate between 1.06 and 1.08 over the whole year—which is about a 11% to 16% effective APR.

Loan Repayment

With the Settlement Advance, American Express can collect repayment in two different ways.

One option is to have American Express deduct a percentage of your American Express card transactions until the loan amount and the factor fee is repaid (much like a merchant cash advance). For instance, American Express could take 20% of each Amex transaction until they’ve collected in full.

Another option is to have American Express open a lockbox for you, much like how their short-term loans can be repaid.

In both instances, American Express will take automatic deductions to collect the financing.

Who Qualifies for These American Express Small Business Loans?

So, are any of these American Express small business loans for you?

Well, they could be solid financing options for some business owners, and not a fit for others.

First off, in order to pursue this financing option, you have to be a merchant that accepts American Express credit cards for your business.

American Express small business loans are repaid when they take a portion of your Amex card transactions—so accepting American Express cards is the absolute baseline for eligibility.

After that, American Express looks at the following qualifications that most small business lenders consider:

• Annual revenue. American Express wants to see that your business brings in a minimum of $50,000 in annual revenue.

• Credit and debit card receivables. Because much of this financing is based off of what you bring in in credit card sales, American Express checks to see that you have a minimum of $12,000 in annual credit and debit receivables.

• Time in business. Like most business lenders, American Express looks to see if you’ve been in business for at least 24 months.

American Express looks at those three factors, along with creditworthiness (though they don’t set a range for eligible credit scores), for any application for their financing products. However, if you’re applying for the two-year financing, they also look to see that you’ve accepted American Express credit cards for the past 24 months.

You should also be aware that American Express doesn’t lend to business in certain industries, like debt collection, insurance, adult entertainment, brokers, and so on. Check out their list of ineligible industries to make sure that your industry isn’t on there.

But in general, retail, restaurant, and lodging businesses (ones that do high volumes in credit card transactions) are good candidates for American Express small business loans.

What Are These American Express Small Business Loans Good For?

Now that you know what kind of borrowers Amex is looking to work with, how can you tell if one of these American Express small business loans is right for you?

Well, the shorter-term loans are likely good financing options for larger business purposes—like buying equipment, expansion, or financing a major business project. If you qualify for a loan amount in the upper end of their range ($2 million), you’ll have a lot of capital to use for your business.

The Settlement Advance, on the other hand probably a better option for general working capital needs—like covering payroll, managing seasonal inventory, etc. In general, if you know that you can pay the advance off easily each month, the Settlement Advance can be used for a variety of purposes.

Should You Use One of American Express’s Small Business Loans?

So, should you pull the trigger on one of the American Express small business loans?

Every small business owner will find themselves in a different financial situation.

But when you’re making the decision, here are some advantages and disadvantages to consider:

American Express Small Business Loans: The Advantages

What are some reasons to go ahead and take out one of these loans?

Well, here are a few:

• Simple application process. The application process for any product in the Merchant Financing program is fully online. Typically, you just need to submit a few different documents: tax returns, bank statements, and monthly statements from credit card processors.

• Fast time to funding. If you’re looking for quick business loans, then an Amex small business loan could be a good fit. In the best case, you could be approved for business funding the next day. The speed of the funding depends on a few different factors, including your credit card processing agreements, the repayment method you choose, the loan amount, and the product term you’re applying for.

• (Relatively) affordable. As far as fast, easy financing goes, American Express offers relatively affordable rates. Compared to similar products, like merchant cash advances, American Express small business loans have a very affordable effective APR range.

• Automatic payments. Unlike other small business financing products, your business loan repayments are automatically deducted. No checks necessary (and no fear of missing payments)!

• Prepayment discounts. Other small business lenders don’t let you repay your financing early (or charge you a penalty if you do). However, if you can manage to pay off your Amex loan early, you can stand to save a fair amount of money in the rebate.

American Express Small Business Loans: The Disadvantages

As with any small business financing product, there are cons to weigh against the pros.

Here are some downsides to American Express small business loans that you should consider before signing the dotted line:

• Short terms. If you qualify for a larger loan amount with American Express, that’s a lot of cash to pay back over a short amount of time—even if you qualify for the longest term (two years). You won’t have the debt on your books for too long, but you’ll have high repayment amounts.

• High(er) APRs. Again, when compared to similar financing products, American Express small business loans are relatively affordable. However, if you can qualify for other products—like medium-term loans, SBA loans, or business lines of credit—you’ll certainly find lower rates for your business.

• Tough on cash flow. If you choose to have Amex collect repayment by taking a fixed percentage of your daily credit and debit card sales, that can seriously cut into your week-to-week cash flow.

• (Relatively) more stringent requirements. Whereas merchant cash advance companies and some short-term lenders work on very few qualification standards, American Express does look at your business financials pretty closely before they approve you. However, you’ll find that their requirements are much more manageable than that of a bank, SBA lender, or longer-term lender.

• Consequences if you can’t repay. As with any small business lender, American Express has different consequences if you can’t pay—which they outline explicitly on their website. If you can’t pay in full one month, that affects the amount you’re disbursed the next (for the Settlement Advance). If you repay less than 70% of the funded amount, Amex could initiate an ACH debit from your business’s bank account on file for the amount unpaid. For the one- or two-year financing, failure to pay in full at the end of the term results in a repayment rate of 100% until the outstanding balance is repaid. Or they could simply initiate an ACH debit to collect on the amount unpaid.

All in, American Express small business loans could be a solid financing option for merchants who need fast financing. However, if you qualify for a less-expensive option, it’s always better to go that financing route.

An Alternative Funding Option: American Express Business Credit Cards

While not technically on the list of American Express “small business loans,” it’s important to note that Amex’s wide array of business credit cards can be used for financing a business in some way.

If you have small- or medium-sized business expenses to cover, oftentimes you can do so on a business credit card or business charge card. (A business charge card is especially useful in this scenario considering the fact that they don’t come with a credit limit—but you must pay in full each month.)

In general, as long as you’re confident that you’ll be able to pay off the balance on your business credit card each month, using a business credit card as a loan is a good way to cover your business expenses.

Especially considering the fact that business credit cards come with different reward rates, cash back rates, and different perks every time you spend money on the card.

If you’re looking for a business charge card, here are a few of American Express’s best:

• American Express Business Gold Rewards Charge Card. The Business Gold Rewards Charge Card is a good option for business owners who want to earn business rewards on their purchases: You can earn 3x Membership Rewards points on a category of your choice out of five, 2x points on the remaining four categories you didn’t choose, and 1x point on everything else.

• American Express Enhanced Business Platinum Charge Card. This business charge card is the perfect business charge card for frequent-flyer business owners. From a $200 travel credit to access to the world’s best travel lounges, you’ll earn the most valuable travel perks on the market.

Another convincing reason to consider using one of American Express’s business credit cards as a financing solution is the ability to take advantage of a 0% introductory APR period.

For instance, the Blue Business Plus and the SimplyCash Plus Credit Card offer a 0% intro APR for 12 and 9 months respectively. In a lot of ways, using a 0% introductory APR card is like having a free loan for almost a year. You can use the business credit card to cover your business expenses, and you won’t need to pay extra interest on what you borrow.

You’ll likely need to pay at least the minimum due each month with these cards, however. And when the 0% intro APR period is over, you’ll need to pay your balance in full every monthly to avoid interest payments.

Which American Express Small Business Loan Is For You?

Now that all the American Express small business loans—plus their top business credit and charge cards—are laid out on the table, are any of them the right financing solution for your business?

For businesses partnered with American Express, and actively accepting their cards, one of their small business loans could very well be.

Whatever financing option you choose to go with, make sure you’ve fully shopped around your options before you move forward with any of them. That way you can be confident that you’re getting the best deal possible for your business!

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