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 businesses—others include 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 product, 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 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 payment.
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’s 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 payments made to vendors will appear as though they are coming from the business owner rather than American Express.
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 AmEx 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 bank loans and alternative loan providers. 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.
This article was originally written on July 8, 2016 and updated on May 2, 2018.