If your small business accepts American Express credit cards and performs consistent debit and credit transactions, American Express Merchant Financing could be an advantageous way to grow your business. This short-term financing option closely resembles a traditional merchant cash advance. However, there are several notable differences, especially regarding requirements and repayment systems.
Note: American Express is not taking new merchant financing applications at this time.
American Express Merchant Financing operates like a merchant cash advance for businesses that accept American Express credit card payments. You can borrow up to $2 million, with terms of up to two years.
The debt is repaid via a fixed percentage of daily debit and credit card sales. So, the higher your sales volume, the more you pay that day.
A unique feature of Amex Merchant Financing is that payments can come from all credit and debit sales or just your sales from American Express cards. This alone represents a departure from similar programs from Paypal Working Capital, Square Capital, and Stripe Capital that only get paid back from the portion of charges processed via those services.
Merchant financing loans are just one offering from American Express and shouldn’t be confused with American Express Business Loans.
To apply for American Express Merchant Financing, you may need to provide the following documents and information:
American Express Merchant Financing is only available to businesses that accept payment through Amex credit or debit cards. If you’re seeking a maximum term of two years (24 months), your business must have accepted Amex credit cards for 24 months.
Eligible businesses must generate at least $50,000 in annual revenue and $12,000 in annual credit or debit receivables. Your business must also be at least two years old. And though Amex does not have a minimum credit score, most borrowers reportedly have scores of at least 650.
Unlike a traditional merchant cash advance, Amex Merchant Financing requires collateral. Amex cannot use real estate and motor vehicles (the two most popular forms of collateral). Thus, you’ll have to use other business assets like equipment or inventory.
You may have to sign a personal guarantee for less than $35,000. This means that Amex could potentially seize your personal assets to make up for the loss in the event of a default.
Additionally, American Express restricts certain industries based on the current degree of risk. You’ll have to contact a customer service representative to see if your industry belongs to this group.
Amex Merchant Financing offers several repayment systems. First, you can have payments deducted from all credit and debit card sales. In this case, Amex partners with other credit card companies to automatically deduct repayments from your accounts.
Second, you can deduct payments exclusively from your credit card receivables from Amex sales. You’d only make payments on days when your business makes Amex sales. However, you must perform a certain number of Amex sales to qualify for this repayment system.
Another option is having the other credit card companies send your receivables to Amex so they can deduct your repayments from this bank account. Lastly, you might qualify for daily ACH debits from your business bank account. This is a relatively common way to process automatic payments, especially for small business loans.
Instead of a traditional interest rate, Amex charges a fixed fee of 1.75% to 20% of the total loan amount. This comes out to approximately $0.06 to $0.26 on each dollar borrowed. The longer your terms, the larger your fee.
The minimum term is six months, and the minimum borrowing amount is $5,000. Amex offers terms of 6-, 12-, or 24 months for loans greater than $35,000. For loans of $35,000 or less, Amex only offers a 12-month term.
Amex Merchant Financing is currently not accepting new applications. When new applications are open, the process works like this:
First, visit the American Express Merchant Financing website and click “Get Started.” You’ll be asked to enter your name, contact information, and basic information about your business.
Then, click “Continue” to determine if you are pre-qualified for Amex Merchant Financing. Pre-qualification determines if you meet Amex’s minimum requirements. It’s convenient because you won’t have to supply additional information without knowing your eligibility.
After submitting the information, Amex will give you a preliminary offer. You will also receive instructions on how to complete the rest of the application.
You’ll be asked for further details about your business upon achieving pre-qualification. This information will likely include the following:
Depending on the amount and payment method you request, you may be asked for even more information. This might include your personal credit score, business tax returns, business bank statements, credit card statements, or ownership documents.
After submitting your application, Amex will reach out to you again with a final offer. If you accept, funds should appear in your bank account within two to five business days.
With most repayment options, payments will automatically be deducted from your business bank account or your receivables. If there are insufficient funds to make daily payments, you may be charged a late fee of $39 or 2.99% of the payment amount (whichever is greater).
American Express also offers a prepayment discount or “rebate.” If you pay off your loan in full before the due date, you may be eligible for a rebate of up to 25% of your fixed fee.
Here’s how to qualify:
For 6-month terms:
For 12-month terms:
For 24-month terms:
Amex Merchant Financing has numerous advantages over traditional merchant cash advances. Compared to other short-term financing options, Amex Merchant Financing is considerably cheaper. Their rates may very well be among the lowest in the entire merchant financing industry.
Merchant cash advances (MCAs) are one of the most expensive forms of financing because most have very loose requirements. Applicants can usually have low credit scores, less than one year in business, and no collateral.
On the other hand, Amex Merchant Financing requires collateral, at least two years in business, and at least $12,000 in annual debit and credit card sales. These requirements give Amex less reason to suspect its clients will default, and less risk means lower costs.
Also, Amex Merchant Financing is one of the few financing options that provide an incentive to pay early. You’d be hard-pressed to find another merchant cash advance that reimburses a portion of your fixed fee payments. If anything, you’re more likely to come across a company that charges prepayment penalties or offers no reward for paying early.
Hence, it makes sense to look into Amex Merchant Financing if you will most likely be able to pay off your loan early enough to get a rebate.
The most apparent disadvantage of Amex Merchant Financing is that it’s only available for businesses that accept American Express cards. If you’re seeking 24-month terms, you must have accepted Amex cards for at least 24 months.
Compared to the traditional MCA, Amex Merchant Financing is generally harder to qualify for. Other options typically won’t require collateral and at least two years in business. Some of them will work with companies that are just six months old.
And while Amex does offer high borrowing amounts (up to $2 million), the maximum term is just two years. That’s not a lot of time to pay off such a large loan.
Also, Amex’s funding time is on the slower side than the rest of the industry. These days, it’s not difficult to find a company that can approve and distribute funds in less than two days.
On the other hand, Amex can take up to five days to distribute funds. The length of their application only makes this process even slower. Other companies require just a couple of documents, and their applications can be completed in minutes.
Pros:
Cons:
If you are currently paying back an Amex merchant financing loan, you cannot receive another round of funding. However, you may be able to apply for renewal once you’ve paid off at least 50% of your principal. This depends primarily on your business’s financial health and your history of timely payments.
Here’s where it gets a little complicated:
Technically speaking, you can’t receive and use the renewal funds until you’ve paid off your current loan in full. But if you’re approved for renewal, you can use a portion to pay off your remaining balance.
Another option is being approved for renewal and then paying off the entire loan early with your funds. In this case, the full renewal amount will be deposited into your business bank account.
According to American Express’s website, 70% of their customers renew their loans.
You can apply for renewal once you’ve repaid 50% of your principal. To apply for renewal, call Amex customer support. It’s important to note that unless you want to pay off your remaining balance with the renewal funds, you won’t be able to use the funds for any other purpose until your remaining balance is paid off.
Amex’s fixed fee is not the same as APR. The fixed fee is a flat percentage of your advance that you’ll pay even if you pay off the total amount early. On the other hand, APR combines interest and fees to reveal the percentage of the loan that you’ll pay in a year.
One of the essential requirements for Amex Merchant Financing is substantial debit and credit card sales. For this reason, restaurants, retail stores, and hotels may have the easiest time qualifying for financing.
While they share similarities, Amex Merchant Financing is a business loan, whereas an MCA is a purchase of future merchant sales. As such, MCAs skirt certain financing regulations that apply to commercial loans like the Amex Merchant Financing loan.
The repayment structure for Amex Merchant Financing is like an MCA. However, you can choose to have repayments deducted exclusively from daily Amex sales instead of all debit and credit card sales. This option is only available for businesses that perform a certain amount of sales from Amex cards.
Several circumstances could render you ineligible for Amex Merchant Financing. If your cash flow is a little rocky, Amex may determine that your finances cannot handle the pressure of daily payments.
Remember, your cash flow must be able to support this repayment system while covering recurring business expenses. In other words, you might not qualify if Amex sees that you don’t have enough cash to do both simultaneously. Even if you have sufficient debit and credit card sales, you may still be declined if your credit score is below or around 650.
Another possibility is that you requested more funds or longer terms than Amex is willing to provide, and the fees are higher for longer terms. Hence, your daily cash flow might only be strong enough to support shorter terms than you requested.
But being declined for this financing option doesn’t mean similar ones are out of reach. Plenty of business financing companies offer merchant cash advances for significantly looser requirements. As long as you have sufficient debit and credit card sales, you probably won’t have to provide collateral or be in business for over two years. The rates may be slightly higher, but the application will be much shorter, requiring just a few documents at most.
United Capital Source has access to many small business loan options, including:
As you can see, Amex Merchant Financing works best for established businesses that perform high volumes of debit and credit card sales. These businesses likely have solid cash flow, which allows them to pay off their loan early and renew their loans.
For this reason, younger businesses with weaker cash flow and less time to spare might want to seek other options. And again, Amex is currently not accepting new applications, but this information should be helpful when they open applications again.
We here at UCS rate Amex Merchant Financing a 4.8 out of 5 rating because of their excellent service and always taking care of their clients.
Disclaimer: The American Express trademark is owned by American Express and its use herein is for reference purposes only and it does not indicate sponsorship or endorsement from American Express.
