American Express Loans Guide: Grow Your Business with Funding from AMEX

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Though ideas set them apart, businesses still have several things in common. One thing’s certain with all businesses, they need money. Money funds startups, maintains cash flow, and supplies capital for special projects. That’s where American Express Loans come in handy for business owners.

More About American Express Loans for Businesses

American Express is a common household name for personal and business credit cards. Many still don’t know much about their loans for small businesses. The company’s been around for decades, but extended their small business services in 2011. Business owners know some circumstances need more than a credit card can finance. In those times, you should know the ins and outs of American Express Loans.

Understanding Merchant Financing

Loans offered by American Express aren’t exactly like traditional merchant loans. They base the program on merchant financing, but it’s more beneficial. It’s best to have an understanding of what merchant financing is. American Express Loans are still commercial loans, while merchant normal loans are not. You wouldn’t classify a merchant cash advance as a business loan.

With a traditional merchant cash advance, you’re not dealing with an actual lender. Cash advance companies front you the money fast. They also and get it back from your business transactions. Your agreement involves surrendering a certain percentage of daily debit and credit receivables. American Express Merchant financing programs give unsecured financing.

Types of Business Loans from American Express

American Express offers two types of small business loans:

(1) short-term loans and (2) settlement advance loans

Short-term Loans

These loans are self explanatory as the terms are one to two years. The smaller the loan amount, the shorter the terms. Loans amounts are between $5,000 and $2 million. As with any loan, the amount depends on meeting certain qualifications. Keep in mind you may have to sign a personal guarantee if the loan is less than $35,000.

One way these American Express loans differ from traditional is the interest rate. You really wouldn’t consider their fee structure having an interest rate. Instead, you know what fee you’re paying over the life of the loan from day one. The fixed financing fee varies depending on the the terms. The shorter the terms, the lower the range of fees. One year term rates range from 6% to 14%. Two year term fees are between 12% and 28%.

As for repayment, you have a few options:

  • American Express can set up what they call a dropbox. The account with them holds all the funds from your debit and credit card sales. They manage the funds, taking their percentage each day and sending the rest to the business. This activity continues until loan repayment is complete.
  • Let your payment processor handle the repayments. Business payment processors for credit card sales already charge fees per transaction. Once the payment processor sets up with American Express, they’ll take an extra fee to cover the loan. American Express gets their fee and your business gets the remaining transactions balance.
  • American Express can draft the daily percentage from your business bank account. To qualify for this repayment option, you must have a loan balance less than $150,000. Repayment terms also have to be a year or less.

Settlement Advance Loans

This type of loan is good to help businesses manage during tough times. It can also fill in gaps until the business reaches a solid point of profitability. How it works is American Express gives you a cash advance each month. You choose the day of the month. The business turns around and repays the loan amount and fee throughout the month. The fee is a factor fee between .5% and .67% of the monthly cash advance.

With this plan, you get a renewable one-year contract. Renewing after the year is optional upon 60 days written notice. Loan amounts range between $10,000 and $1 million based on other qualifications. They divide loan disbursements into monthly installments. Each deposit depends on good repayment history the prior month.

Businesses have a few options to repay the settlement advance:

  • American Express can take a percentage of merchant card transactions. The amount will be enough to cover fees and principal amounts.
  • You can open a lock-box allowing American Express to manage your transactions. Like with the short term loans, they take their money off the top and send you the rest.

How to Qualify for American Express Loans

Not everyone can apply for a business loan with American Express. You must have a few things before beginning the process. First, you must be pre-approved for the business loan. When the company sends notice of your pre-approval, they’ll include the maximum amount and APR. They base these factors on business and personal credit and financial history.

You must also be a merchant who accepts American Express credit cards. The repayment process involves taking a daily percentage of your transactions. During your loan application, they’ll check how long the business has accepted American Express. These two details are what gets you an invite, but here are some other qualifications they review.

Pros and Cons of American Express Loans for Small Businesses

  • Revenue
  • Actual amount of receivables
  • Type of Business
  • How long in business

Let’s do a quick recap on the details of the small business loans from American Express. These categories to show the benefits and drawbacks of the loan.

Pros

  • Fast application and approval process (you can have an answer within minutes)
  • Discounts for early repayment (between 10% and 25% depending on terms and repayment)
  • Pay as you earn (fees deducted from daily transactions or account balance)
  • Inexpensive (compared to traditional merchant cash advances)

Cons

  • High interest rates
  • Stiff penalties and fee (for late or missed payments)
  • Short repayment terms

Should You Apply for One of the American Express Loans?

That all depends. If you need cash right away with limited financing options, this might work for you. If you need a temporary fix for cash flow problems, this may be it. One of these options may fit your business model and financial situation. The business may also rest easy not worrying about plans for repayment. Just keep in mind you still have to meet their company’s standards to qualify.

It may be refreshing to know American Express has expanded their business solutions. The company has a well-known brand. Its reputation is strong from nearly 60 years of credit card services. Whatever route you choose to manage business cash flow, plan carefully. Do your research and weigh all the options for your business situation and goals.

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