Working Capital Loans from American Express
American Express business credit cardholders may be eligible for Working Capital Terms, a short-term financing product aimed to help business owners cover the cost of invoices due to vendors and smooth out cash flow. Working Capital Terms is one of three American Express business loan products offered to small business owners—others include American Express Merchant Financing, offered to American Express card-accepting merchants, and Business Loans, offered to OPEN cardholders.
According to a Bloomberg report, Amex launched the Working Capital Terms product in response to success seen by companies like Square have seen offering flexible loan products to existing customers.
American Express Working Capital Terms are available up to $750,000, with a fee of 0.5% for a 30-day loan and 1.5% for a 90-day loan. This means the annual percentage rate (APR) on an Amex Working Capital Term loan hovers around that of an SBA or bank loan, rather than that of Square’s financing options, which has an equivalent APR well above 30%.
The American Express small business loan will be available via invitation to pre-approved Amex OPEN cardholders. Amex is joining other giants such as Wells Fargo, which also launched a new fast small business loan product in 2016 called FastFlex. Wells Fargo’s product is similarly available to existing Wells Fargo business customers, but offers less flexible loan amounts at a higher cost than Amex’s Working Capital Terms.
How American Express Working Capital Terms Work
Working Capital Terms are specifically provided for customers to pay off their vendor invoices, with the idea that this will free up cash to use on other parts of the business. Funds will be deposited directly into the vendors’ accounts in as little as two days. Deposits can be made to vendors who do not accept Amex cards as a form of repayment.
Businesses utilizing the Working Capital Terms loan will select the vendor they want to pay and how much they’d like to pay that vendor. After the term has ended (30-, 60-, or 90-day term), Amex automatically debits the business bank account for the amount of the loan plus the associated fee. Fees range from 0.5 – 1% of the total loan amount for 30-day terms, 1 – 2% for a 60-day term, and 1.5 – 3% for 90 days.
To mitigate the embarrassment sometimes associated with having a loan provider pay your invoices, Amex claims that the repayments made to vendors will appear as though they are coming from the business owner rather than American Express.
The Pros of American Express Working Capital Terms
American Express is an institution when it comes to business finance. Their line of business credit cards is world class, and their working capital terms offer great benefits to qualifying applicants.
American Express Working Capital Terms can be approved for a line up to $750,000, a healthy limit for the established business. This allows business owners that much more flexibility when there are lapses in cash flow.
Open Borrowing Structure
While American Express Working Capital Terms are basically accounts payable financing, not a line of credit, they function somewhat similarly. You’ll be provided with an “Open to Borrow” amount, which represents how much of your approved credit limit you have available to borrow. You can continue to request funds from the line as you need, providing extra flexibility for your business.
Low Rates and Fees
Most working capital terms come in with APR equivalents of 20% to 100%. Not so with American Express Working Capital Terms. Effective APRs for American Express Working Capital Terms come in between 6% and 12%. Borrowers will only be charged a one-time fee for the loan between 0.5% and 1.0%. That’s money saved and cash back in your business.
The Cons of American Express Working Capital Terms
As with any financing option, there are some drawbacks to American Express Working Capital Terms. Here are a few cons.
Only Available to Amex Card Members
In order to access American Express Working Capital Terms, you’ll need to be an American Express Business Card member, and be pre-approved for an offer. To be eligible, you’ll need to have had an Amex card for at least a year and be actively using the card. This can be bad news to some looking for low-interest working capital terms, and others who may have a hard time getting approved for an Amex business credit card.
Large Lump-Sum Payment
Rather than budgeting for a regular monthly payment, you’ll be expected to make a one-time lump-sum repayment at the end of a short term. This can be a major barrier for most businesses, particularly if you use a significant portion of your approved line during the term, which can be around 90 days, depending on your particular approval.
High Revenue Requirement
The large lump-sum payment is perhaps one of the biggest driving factors behind the high revenue requirement for approval. To be approved, you not only need to already be using an Amex business card, you’ll also need to show at least $200,000 annual revenue.
American Express Working Capital Terms, Rates, and Features
|Financing Amount Range||$1,000 – $750,000|
|Fees||0.5-1.0% (30 days), 1.0-2.0% (60 days) 1.5%-3.0% (90 days)|
|Financing Terms||30,60,or 90 days|
|Repayment Options||One-time lump-sum payment at end of term|
American Express Working Capital Terms Eligibility Requirements
Getting approved for American Express Working Capital Terms isn’t a walk in the park. It takes putting time into your business, your business credit, and an existing relationship with American Express.
The key step to qualifying for American Express Working Capital Terms is to be a current, active American Express Business Card member. You’ll need at least one year of card membership, and be actively using the card. This in and of itself can be a significant challenge, depending on your business credit score. You can keep an eye on your business credit with Nav, and get your business ready to apply for a loan with Nav’s Business Loan Builder plan.
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If you qualify as an American Express customer, you’ll be pre-approved for a credit limit. Keep in mind that they already have your information. This means they won’t pull a new credit report, they’ll go off the information they already have on hand.
You’ll need to show that you have at least $200,000 of annual revenue, and the more the better. Remember that you’ll be expected to make a one-time lump-sum payment at the end of your short term.
Do Working Capital Terms help build business credit?
The short answer is yes, which is great news for business owners looking to build their business credit and who are confident that they can make on-time payments on Working Capital Terms.
Amex will report payment history on small business loans in the same way that it does for American Express OPEN cardholders. Both positive and negative payment history will be reported to the Small Business Financial Exchange (SBFE), and negative information will be reported to Dun & Bradstreet.
Who Will Working Capital Terms Be Good For
At rates competitive with bank rates, Amex’s Working Capital Terms are bridging the cost gap between business loans and alternative loan providers, and looking to avoid using credit and debit cards. This product is invite only, and according to Bloomberg News correspondent Jenny Surane, Amex “goes for the cream of the crop with any of their loans, so existing customers are who they are targeting.”
Customers who work with a number of vendors and lack the flexibility of trade terms will benefit from this product—in other words, if you work with vendors who require you to pay upfront or within a few days, this will be a low-cost product to try out should an invite end up in your inbox.
Who Will Miss Out on this Amex Business Loan Product
Because Working Capital Terms are only offered to finance vendor invoices, a number of business owners will miss out. This product probably misses the mark for business owners who already have flexible trade terms on their vendor invoices, but could still use the cash to finance working capital or growth opportunities for their business. If you fall under that bucket consider other American Express financing products.
American Express offers small business owners a tremendous range of products, from short-term loans to their business platinum card, merchant financing, merchant services, and more. With American Express Working Capital Terms, they offer a level of flexibility at low rates and a low additional cost to the business owner. If you can qualify, it’s definitely an option worth considering to help level up your business.
This article was originally written on July 8, 2016 and updated on November 21, 2019.