The Ultimate Guide to American Express Merchant Financing
You probably know American Express as the massive personal and business credit card issuer.
But did you know that American Express offers more than just credit cards?
American Express has ventured into the small business lending world: offering a variety of Amex business loans.
The major player in Amex’s suite of financing products?
American Express Merchant Financing.
In this guide, we’ll walk through everything you need to know about American Express merchant financing—including how it works, how to apply, and where to find your best alternatives.
Quick Jump To…
- What is American Express Merchant Financing?
- Amex Merchant Financing: Amounts, Terms, and Rates
- How to Apply and Qualify for Amex Merchant Financing
- The Pros and Cons of American Express Merchant Financing
- The Best Alternatives to American Express Merchant Financing
What is Merchant Financing?
If you’re a new small business owner, you might not know what merchant financing really is.
Before we get into the specifics of American Express merchant financing, let’s cover how this type of financing works.
Merchant Financing is a small business funding solution geared towards merchants.
This means that it’s typically an option that pursued by business owners who operate a merchant storefront, and those who process credit card and debit card transactions to receive payment from customers.
You see, merchant financing is essentially an all-encompassing term for a merchant cash advance.
A merchant cash advance is structured pretty much as it sounds:
A merchant receives a cash advance in the form of a lump sum loan from a cash advance company. You’ll then pay back the advance by allowing the merchant cash advance company to take a fixed percentage of your daily credit and debit card sales.
The cash advance company will take from these sales every day until you’ve repaid the full amount you were advanced, plus interest.
What is American Express Merchant Financing?
Now that we’ve set the stage for merchant cash advances, we can look a little more closely into American Express merchant financing specifically.
In 2011, American Express entered the world of online business lending by opening up their merchant financing product.
While the American Express merchant financing product is structured similarly to a merchant cash advance, it’s different than this type of financing in a couple key ways.
American Express merchant financing offers loans
A merchant cash advance, in general, isn’t technically a loan. A merchant cash advance is a purchase of a merchant’s future credit card and debit card receivables. A merchant cash advance company isn’t loaning your business money, it’s purchasing the right to collect on your credit and debit card receivables in the future.
This is where American Express merchant financing differs from a merchant cash advance: American Express merchant financing fully offers loans.
American Express merchant financing loans are commercial loans.
American Express merchant financing is a lot more affordable than MCAs
The second notable difference between merchant cash advances and American Express merchant financing is that the latter is much less expensive than traditional merchant cash advances.
Merchant cash advances have sky-high APRs—making them the most expensive financing option for small business owners on the market. In most merchant cash advance cases, you’ll be paying anywhere from $0.10 to $0.60 on each dollar you borrow.
American Express merchant financing is a similar product to merchant cash advances but is much more affordable. While you can’t technically convert your offer on Amex merchant financing to APR, you’d end up paying somewhere around $0.06 to $0.26 on each dollar borrowed.
American Express Merchant Financing: How It Works
You’ve got the bare-bones of American Express merchant financing—let’s get into the details.
How does merchant financing with American Express work?
Well, the first thing that you need to know is that American Express merchant financing is specifically for business owners who process credit card transactions from American Express—that’s a must-have.
If that’s your business, then American Express merchant financing could be an option.
With this type of business loan, American Express loans you a term loan that you’ll repay allowing Amex to collect a percentage of your daily credit and debit card sales.
Again, it’s very similar to a merchant cash advance.
American Express Merchant Financing: Amounts, Rates, and Repayment
Let’s dive into the specific terms set on American Express merchant financing so you can square up the product against your other options.
Here are the amounts, rates, and repayment structure set on Amex merchant financing.
American Express Merchant Financing Amounts
American Express offers both a little and a lot for their merchant financing product.
Loan amounts on American Express merchant financing range from $5,000 to $2 million.
Because Amex merchant financing offers a wide spectrum of loan amounts, you could use this type of financing for a variety of different business purposes.
The amount you actually qualify for, however, will be determined by American Express after they’ve fully reviewed your application.
American Express Merchant Financing Fees and Rates
Amex advertises their merchant financing product as an interest-free loan.
That’s because they only charge a fixed fee for borrowing via American Express merchant financing.
That means that you’ll pay a fee of anywhere between 3% and 28% of the total loan amount.
Because this is a flat, fixed fee, the total amount you’ll need to pay back on the financing is determined before you’re actually approved. This structure is very similar to factor rates that are typically applied to a merchant cash advance.
For instance, if you were approved for $75,000 in American Express merchant financing and your fee was 6%, you’d repay $79,500 in total.
The fixed fee you qualify for generally depends on two factors: your eligibility as a borrower, and the term you qualify for.
Like any business loan, general qualifications like your credit score, your annual revenue, and your time in business play a major factor in not only the financing you can secure for your business but the interest rate at which you qualify for.
American Express merchant financing is no exception—they’ll look at your qualifications as a borrower to determine how high or low your fixed fee will be. (We’ll get into the exact eligibility standards for Amex merchant financing below.)
And finally, the term you qualify for will also determine what your fixed fee is. In general, the longer the term you’re approved for, the higher your fixed fee will be. That’s because it’s riskier to lend money out in the long-term. Put simply, there’s less certainty of what the economic conditions will be and how your business will be handling them in the longer-term than the near-future.
All in, American Express offers merchant financing at a fixed fee of 3 to 7% on a 6-month term, 3.5 to 14% on a 12-month term, and 7 to 28% on a 24-month term.
American Express Merchant Financing Repayment
As we’ve mentioned, American Express merchant financing gets repaid just like a merchant cash advance does: with daily percentages taken off your credit and debit card sales.
In most cases, your repayment will be automatically deducted from your business bank account or directly from your receivables.
It’s important to keep in mind that American Express takes a fixed daily percentage of your credit and debit card sales. Because your daily credit card sales probably fluctuate based on the day of the week, you won’t be repaying the same amount every day. The percentage American Express will take will stay the same, but on days you bring in more credit card sales, you’ll be giving a larger amount to American Express. And on the flip side, the days you bring in less in credit card sales, you’ll give less to American Express.
While this general structure is the norm with American Express merchant financing, the way you actually repay will be determined by American Express when you apply to their program.
Depending on your creditworthiness, other aspects of your business, loan amount, term, and history with American Express, you might qualify for a variety of four different ways to repay.
Repayment from American Express Receivables Only
Your American Express receivables are your credit card receivables that only come from Amex. In this repayment scenario, American Express merchant financing will take a fixed percentage of your Amex credit cards sales only, and only when your business brings in American Express credit card receivables that day.
This repayment percentage is determined, in part, by the loan amount, term, and the volume of Amex credit card transactions your business brings in. This repayment rate will stay the same throughout the lifetime of your loan as long as you remain in good standing. After American Express merchant financing takes their daily percentage, the remaining credit card receivables are sent to your business bank account.
Repayment from Total Receivables through “Split Funding”
On the other hand, you can have American Express take from your total receivables. This is everything you bring in from all credit card issuers—not just Amex. In this scenario, American Express merchant financing partners with the payment processor you use such that your processor sends a percentage of your total receivables to Amex to repay your loan. This repayment method essentially adds a second step to the repayment but draws from a bigger pool of receivables.
Repayment from Total Receivables via Transfer Account
In another option, you could repay by allowing American Express merchant financing to open a temporary transfer account with Wells Fargo on your behalf. Your payment processor will then send your total receivables (each day your business has receivables) to Wells Fargo, and from there, Wells Fargo will send a percentage of your total receivables to American Express to repay your loan.
Repayment from Business Bank Account via Debit ACH
In a final repayment method, you might qualify for daily ACH debits from your business bank account.
This is a very common way to process automatic payments and isn’t unlike how many business loans are repaid. However, it’s important to note that American Express might charge a fee if there are insufficient funds in your bank account to make each daily payment.
Things You Need to Know About American Express Merchant Financing
Before you sign on the dotted line for American Express merchant financing, there are some details to this commercial loan product you should know.
When evaluating your options, keep these? things in mind.
American Express Merchant Financing Could Come With a Personal Guarantee & Collateral Requirements
American Express merchant financing deviates from merchant cash advances in another notable way: they require collateral.
American Express merchant financing is technically a secured business loan.
Every Amex merchant loan is secured by business assets (but not real estate property or motor vehicles).
Why is this important to consider?
Well, you want to be sure that you’re comfortable offering up a valuable business asset as collateral for a secured loan. While offering collateral makes financing easier to qualify for, it also puts your assets at risk. If in the worst case, you were to default on your loan, American Express can seize your collateral to recoup its losses.
And finally, you should also know that American Express merchant financing can also require a personal guarantee if your loan is $35,000 or less. Like collateral, a personal guarantee is another way to minimize the risk of lending. With a personal guarantee, you’re essentially agreeing to pay your business debts with your personal assets in the chance your business can’t pay back it’s financing.
American Express Merchant Financing Offers a Prepayment Discount (Sometimes)
You should also know that American Express merchant financing also offers a prepayment discount.
This discount is advertised as a “prepayment rebate.”
If you pay off your Amex loan early, you may be eligible for a rebate up to 25% of your fixed fee. However, you won’t always get a rebate.
Here’s how it works:
If you have a 6-month term agreement, you’ll get a 25% rebate if you pay in full within 90 days of disbursement. If you pay within 135 days of the disbursement, that rebate is only 10% of the fixed fee.
If you have a 12-month term agreement, you’ll get a 25% rebate if you pay in full within 180 days of disbursement, and only a 10% rebate if you pay in full within 270 days.
And finally, if you have a 24-month term agreement, you’ll get a 25% rebate if you can pay in full within 360 days of disbursement, and 10% rebate for paying in full within 540 days.
American Express Merchant Financing Charges Fees Based on Behavior
Like other small business loans, American Express merchant financing can come with fees that you aren’t always are of before you sign the dotted line.
You should be aware that Amex charges late fees if you don’t make a payment on time. (However, they don’t disclose how much a late fee is for a given borrower on their website.)
Also, if you’re repaying the merchant financing via automatic debts with ACH, you’ll likely get charged an insufficient funds fee if your business bank account doesn’t have enough balance to make the total repayment.
American Express Renews Their Merchant Financing
While you can’t take on another merchant financing agreement (from American Express or another provider) while you currently have American Express merchant financing debt on your books, Amex does offer renewals.
You may be eligible to apply for more money from Amex once you’ve repaid at least 50% of your American Express loan.
Based on the credentials of your business, and whether your current Amex merchant financing agreement has remained in good standing, you might be approved for a renewal. While you can apply for a renewal while you have a previous merchant financing loan on your books, you can’t actually receive the renewal funds until you’ve fully paid the remaining balance of your loan.
If you’re approved to renew, Amex offers you one of the following two repayment options:
You can use a portion of your new funds to pay off your existing loan balance. The remaining funds after you’ve repaid will be deposited into your business bank account.
Or, you can make a one-time payment to pay off your existing loan balance. Then the full amount of your newly renewed loan will be deposited into your business bank account.
Renewing is a popular option with American Express merchant financing—70% of their customers choose to renew.
American Express Merchant Financing: The Application Process
Now that you have a general gist of how Amex merchant financing works, you might be wondering what it’s like to apply.
Applying to American Express merchant financing is similar to applying to a merchant cash advance in that you can expect the funds quickly.
But what exactly does the application process look like?
Well, you can apply for merchant financing online or over the phone.
You’ll first be asked for contact information. After that American Express will dig deeper into the details of your business. Here’s what they’ll ask for in a merchant financing application:
- Total Annual Credit & Debit Card Receivables
- Credit Card Processor Name and Number
- Tax ID or American Express Merchant Account Number
- Total Annual Business Revenue
- Business Owner’s Total Annual Personal Income
- Business Owner’s Percentage of Ownership
- Business Owner’s Social Security Number
- Business Owner’s Date of Birth
- Type of Business Entity
- Business Bank Account Details (bank name, routing number, and account number)
Beyond these general requirements, you could be asked to provide additional information and documentation depending on the size of your merchant financing request and Amex’s designated repayment method.
For instance, you could be asked for more business financials (like business tax returns, bank statements, or statements from processors), personal credit score, and proof of ownership.
You also might notice that, just after answering a few questions, you can be pre-qualified for American Express merchant financing. While this means that you’ve met Amex’s initial requirements, it doesn’t mean that you’ve fully qualified. You’ll still likely need to submit all the above documents to be approved.
How Quickly Can You Receive the Funds?
Like other merchant capital advances, American Express merchant financing will work on a fast time frame.
However, if you’re not fully prepared to apply—with the above documents in hand—you might find that Amex financing actually takes a little longer than what you could get with an MCA or short-term loan.
The speed at which American Express can disburse your funds depends on your processing arrangement, the loan amount, term, and repayment structure.
And while the speed to funding is really a case-by-case situation for American Express merchant financing, they can typically deposit funds into your bank account the next business day after you’re approved if your loan is $35,000 or less.
Everything else will typically take 2 to 5 business days to be approved and funded.
How to Qualify for American Express Merchant Financing
Gearing up to apply for Amex’s merchant financing solution?
You should know if you qualify first.
You know by now that American Express merchant financing is only an option for business owners and merchants who accept American Express credit card transactions.
But what else will Amex be looking at while deciding whether or not to approve you?
Here are their general qualifications:
- Accept American Express cards (to qualify for 24-month financing, you must have accepted Amex cards for the past 24 months)
- Bring in a minimum of $50,000 in annual revenue
- Bring in a minimum of $12,000 in annual credit and debit receivables
- Have been in business for at least 24 months
The Advantages to American Express Merchant Financing
Since its launch in 2011, American Express merchant financing has risen in popularity, becoming a good option for business owners who need fast-access to working capital.
Why has American Express financing caught on?
Well, here are its main advantages.
Fast Time to Funding
Compared to other options in the small business financing space, American Express offers a relatively fast time to funding.
With funds disbursed the day after you’re approved (and as a worst case, 5 days after you’re approved), American Express merchant financing could be a good fit for business owners who need immediate capital.
While American Express requires that borrowers be two years into their businesses, and they don’t specify a minimum credit score, this type of financing will be more accessible than other options.
Whereas banks and longer-term lenders only work with the most qualified borrowers in all regards, American Express merchant financing has much less stringent requirements.
A major difference between Amex merchant financing and other types of financing is that the American Express option heavily weighs how many credit card transactions you’re bringing in in a given week or month. Having a high volume of transactions will have a large impact on what you qualify for with American Express.
In the space of fast and accessible financing options, American Express merchant financing has the major advantage of being able to offer competitive rates.
In fact, American Express probably offers the lowest rates on average in the short-term and merchant financing industry.
Wide Range of Loan Amounts
Another major advantage for business owners of growing companies is the wide range in funding American Express merchant financing offers.
You can apply for anywhere between $5,000 to $2 million.
This loan amount can grow with you as you need more and more funding and as your goals get larger.
Busy small business owners will also benefit from the fact that American Express merchant financing is repaid with automatic payments.
This takes the hassle out of remembering to make your payments on time and in full—which is crucial for building good credit.
No Prepayment Penalty
Another major advantage of using Amex merchant financing is that it doesn’t come with a prepayment penalty.
In fact, it comes with an incentive to pay early. If you can pay within the terms outlined above, you’ll get a percentage taken off of your fixed fee payments in the form of a rebate.
You’ll have to pay the fixed fee upfront, but you’ll get reimbursed for the money if you pay early.
This is a major perk for business owners who expect that they’ll have the capital on hand to pay their merchant financing loan off.
The Disadvantages of American Express Merchant Financing
As with all business funding methods, American Express merchant financing comes with downsides you need to weigh before you sign on the dotted line.
Here are some of the disadvantages you should consider.
Harder to Qualify for Than Other Options
When comparing Amex merchant financing to other types of loans in the space, American Express financing is certainly harder to qualify for.
A short-term loan or a merchant cash advance, for instance, would be easier.
That’s mostly due to the fact that American Express sets a minimum of two years in business to qualify. Short-term loans or MCAs can work with newer businesses than this.
Slower Than Other Options
While American Express funds their loans the day after (for smaller loans, but 2 to 5 for larger loans) you’re approved, the approval process could take a longer time than a few days.
This is different than even faster lenders, who will approve you the same day or 2 or 3 days after you simply apply.
More Expensive Than Other Options
While American Express merchant financing is less expensive than similar lenders in the space, it’s not the most affordable option on the market.
You should always take the lowest-rate loan you qualify for, so be sure to shop your options before you sign on the dotted line with any loan.
The maximum loan amount American Express offers is 2 years. That’s a pretty tight term length if you end up taking out a larger loan from American Express (remember, they go up to $2 million).
Amex merchant financing isn’t necessarily a good option for borrowers who are looking for a more comfortable repayment schedule.
The daily repayments with American Express merchant financing can seriously cut into a business’s daily and weekly cash flow.
If your repayment agreement includes a large fixed percentage that Amex is taking from your credit card transactions, you might be in a tight spot for covering the regular, day-to-day expenses that come with running a business.
Alternatives to American Express Merchant Financing
American Express merchant financing might not be a good fit for business owners in two different scenarios:
One: You’re just starting your business, and you need easy access to capital.
Or two: You’ve been in business for a handful of years, and you have time to wait for more affordable financing.
Here are alternatives to fit the entrepreneur in each of these scenarios.
If you don’t qualify for Amex merchant financing (or any other type of financing, for that matter), the merchant cash advances from alternative cash advance companies might be a better option for you.
MCAs are the most accessible type of financing on the market. Borrowers who don’t have much business experience or those with struggling credit can qualify for a merchant cash advance.
However, you certainly won’t get a more affordable loan if you go this route. Merchant cash advances have the highest APRs on the market.
Short-term loans are a step up from merchant cash advances and are a great financing option for borrowers who have struggling credit and a short time in business.
Short-term loans offer a smaller amount loan that you’ll pay back with daily or weekly repayments over a term of anywhere between 3 to 18 months.
While interest rates can get very high on short-term loans, they’re generally more affordable options than an MCA.
If you’re someone who actually qualifies for better loan products (more flexible terms at lower rates) than Amex merchant financing offers, then try a line of credit.
A business line of credit gives you access to a pool of funds that you can tap into whenever you need or want to for your business. Once you pay what you drew back, your credit line is fully available to you again.
A business line of credit is a particularly flexible option for small business owners. Plus, lines of credit come with low rates for those who qualify.
If you have two or more years in business, a strong credit score, and more than $50,000 in annual revenue, you’ll likely qualify for American Express financing.
However, it’s worth checking to see if you qualify for medium-term loans, as these qualifications typically fit this arena of small business financing.
The benefit of term loans is that you can get similarly large financing amounts as compared to Amex’s solution, but they’ll come at more comfortable repayment terms and lower rates.
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