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.
In this guide, we’ll answer the following questions and more:
- What Is American Express Merchant Financing?
- What Do You Need to Apply for American Express Merchant Financing?
- How Do You Apply for American Express Merchant Financing?
- Can You Apply for More Funding If You’re Paying Back a Loan?
- What Are the Advantages of American Express Merchant Financing?
- What Are the Disadvantages of American Express Merchant Financing?
- How Do I Renew My Advance?
- Is a Fixed Fee the Same as APR?
- Which Industries is Amex Merchant Financing Best For?
- Is Amex Merchant Financing the Same as a Merchant Cash Advance?
- What If I’m Declined for Amex Merchant Financing?
What Is American Express Merchant Financing?
American Express Merchant Financing is essentially 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 paid back via a fixed percentage of daily debit and credit card sales. So, the higher your sales volume, the more you pay that day. Arguably 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.
What Do You Need to Apply for American Express Merchant Financing?
To apply for American Express Merchant Financing, you may need to provide the following documents and information:
- Business tax returns
- Business bank statements
- Monthly statements from credit card processors
- Tax ID or American Express Merchant Account Number
- Credit Card Processor Name and Number
- Your Social Security Number
- Business Bank Account Details (bank name, routing number, and account number)
Other Important Factors for American Express Merchant Financing
American Express Merchant Financing is only available to businesses that accept payment through Amex credit or debit cards. If you’re seeking the 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 at least $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. Real estate and motor vehicles (perhaps the two most popular forms of collateral) cannot be used. Thus, you’ll have to use other business assets like equipment or inventory.
If you’re seeking less than $35,000, you may have to sign a personal guarantee. This means that in the event of a default, Amex could potentially seize your personal assets to make up for the loss.
Additionally, American Express places restrictions on 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.
For American Express Merchant Financing, You Need to Know That:
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 with them.
Second, you can have payments deducted exclusively from your credit card receivables that come from Amex sales. Thus, 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.
How To Apply for American Express Merchant Financing:
You can apply for Amex Merchant Financing online or over the phone. Here’s how to get started with the former option:
Step 1: Preliminary Questions
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. To clarify, pre-qualification means you’ve satisfied Amex’s general requirements. Pre-qualification prevents companies from wasting time reviewing applications from businesses that will not qualify for funding.
Step 2: Receive Preliminary Offer
After submitting the aforementioned information, Amex will reach out to you with a preliminary offer. You will also receive instructions on how to complete the rest of the application.
Step 3: Complete the Application
Upon achieving pre-qualification, you’ll be asked for further details about your business. This information will likely include:
- Business Bank Account Details
- 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
- Type of Business Entity
- Business Owner’s Social Security Number
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.
Step 4: Receive Final Offer
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.
American Express Merchant Financing: Post Funding
With most of the 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:
If you have a six-month term, you’ll get a 25% rebate if you pay off the loan within 90 days of receiving funds. If you have a six-month term and pay off the loan within 135 days of receiving funds, you’ll receive 10% of the fixed fee.
For twelve-month terms, you’ll get a 25% rebate if you pay off the loan within 180 days of receiving funds. If you pay off the loan within 270 days of receiving funds, you’ll receive a 10% rebate.
Lastly, you’ll get a 25% rebate if you have 24-month terms, and you pay off the loan within 360 days of receiving funds. Paying off the loan within 540 days will give you a 10% rebate.
Can You Apply for More Funding If You’re Paying Back a Loan?
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 principle. 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 of it 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 end up renewing their loans.
What Are the Advantages of American Express Merchant Financing?
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 are one of the most expensive forms of financing. This is largely because most merchant cash advances 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/or credit card sales. Thanks to these requirements, Amex has less reason to suspect that their clients will default. 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.
What Are the Disadvantages of American Express Merchant Financing?
The most blatant 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 merchant cash advance, 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 businesses 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 actually 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. Amex, on the other hand, 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 a matter of minutes.
Frequently Asked Questions
Here are some common questions potential customers might have about Amex Merchant Financing:
How Do I Renew My Advance?
You can apply for renewal once you’ve repaid 50% of your principle. 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.
Is a Fixed Fee the Same as APR?
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 full 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.
Which Industries is Amex Merchant Financing Best For?
One of the key 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.
Is Amex Merchant Financing the Same as a Merchant Cash Advance?
The repayment structure for Amex Merchant Financing is the same as a merchant cash advance. 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.
What If I’m Declined for Amex Merchant Financing?
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. 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 particular 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.
Making Your Decision
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.