American Express Working Capital Review
Small and midsize business owners in the U.S. have a potential new source of funding: American Express, the credit card giant that’s headquartered in New York City. During the summer of 2016, this company began to offer loans through a program called Working Capital Terms.
Right Now, It’s Invitation Only
This American Express working capital review program is designed to let businesspeople reimburse their vendors with greater ease. Only certain American Express Business Card users are currently eligible for those loans, however. The company is sending special invitations to those members, individuals who represent a wide range of industries. Over time, though, more and more people will be able to take advantage of this opportunity.
The reason that only a select group can presently apply for these loans is that American Express will be fine-tuning this program for some time. It’ll ask participants what they think of the experience and what they’d change. Using that information and other data points, the company will find ways to tweak this plan before letting a larger number of people take part.
As far as its specific goals for these business loans, American Express is keeping quiet. It’s not revealing what it hopes its loan volume will be this year or at any point in the future.
Goodbye Costco, Hello Business Loans
This program may be partly a result of the split between American Express and Costco. In 1999, American Express and Costco Wholesale became corporate partners; the latter decided that it would only accept credit cards from the former. However, in early 2015, the two brands announced that they were ending their association. The last day that Costco took American Express cards was June 19, 2016.
Thus, having lost the revenue from the Costco alliance, American Express was perhaps looking for a new source of income, and Working Capital Terms seems to be an answer.
Keeping the Cash Flow Going
American Express understands that business owners often need to wait for their customers to pay them. Therefore, they don’t always have the cash on hand to purchase items from or pay off their vendors when they must. Making the situation worse, many vendors refuse to accept credit cards.
Businesses that typically take in more money during certain seasons of the year — landscaping companies might be an example — can be especially vulnerable to problems related to cash flow.
Working Capital Terms can offer relief. Entrepreneurs can quickly get the money they need to ensure that their cash flow isn’t interrupted.
Making a Request
An American Express Working Capital Terms applicant can ask for an amount of money ranging from $1,000 to $750,000. He or she must state the name of the vendor or vendors that will be paid as well as the length of the payment period. That period can last 90 days, 60 days, or 30 days.
American Express team members review these requests as soon as they can. To arrive at their decisions, they’ll examine applicants’ credit histories. This deliberative process can be surprisingly fast. In fact, a person might be able to ask for a loan and receive an answer only minutes later.
After the Approval
When American Express approves loans, it sends money directly to vendors instead of applicants. A vendor will receive those funds no later than two days after the approval. Also, American Express will let the merchant know the name of the business that’s providing the money.
Of course, borrowers must pay American Express a fee for these services. The company automatically deducts fees from participants’ linked bank accounts. The rate of a loan fee depends on the length of the payment period. For instance, if a businessperson has 90 days to pay it back, he or she will pay 1.5 percent of the loan’s value. If the period is 30 days, the borrower’s fee will be only 0.5 percent of the loan amount.
Keep in mind that Working Capital Terms is separate from the business loan program that American Express runs through an affiliation with Lendio. Those loan amounts can be much larger. They start at $35,000, and they go all the way up to $2 million.
A New World of Financial Services
In recent years, online startup companies have made a significant impact on the banking industry. Brands such as Square and OnDeck Capital have sought to make the process of obtaining loans simpler, faster, and more convenient. Many of these companies experienced swift and steady growth shortly after they launched.
Jack Dorsey, one of the creators of Twitter, is now the head of Square, which is based in San Francisco. Much of Square’s initial fame came from its devices that read debit and credit cards; those gadgets connect to tablets and cell phones.
Square has set up a lending division called Square Capital, and this branch supplies funds in the form of cash advances to vendors. Square will soon be supplying online loans as well. A borrower will have to pay fees that equal between 10 and 16 percent of the loan total.
However, the specter of large financial organizations like American Express getting involved in internet borrowing might worry the leaders of some of these companies. There have been other signs of trouble as well. For example, in 2016, OnDeck Capital’s stock price tumbled more than 50 percent.
Likewise, in early 2016, investors were backing Square’s online loan program at a slower rate than the company had anticipated. On top of that, Square’s stock price has fallen about 32 percent from its highs.
In a way, some small financial companies have been the victims of their own success. So many people want to take out loans from them that these businesses have been having a hard time acquiring the capital that they need to finance the demand.
The Confidence of American Express
Clearly, larger lenders have been aware of the market for online borrowing for a while, and at least a few have been eager to offer it to their customers. For example, in 2016, Wells Fargo & Company introduced an initiative to provide online loans to business owners.
Behemoths like American Express believe that they have an advantage over smaller financial companies: They can charge relatively low fees.
In addition, American Express sees a rich opportunity to expand Working Capital Terms. After all, with the reputation that it’s built over the years as well as its large network of customers, the company stands a good chance of success with business-to-business (B2B) loans. On top of that, as the stocks of some smaller internet lenders tumble, a larger company could sweep in and take some of their clients away. Perhaps a few big banks will acquire those firms outright.
Not to mention, given all of the information that American Express has about its B2B loan applicants, its employees should consistently select outstanding loan candidates. Therefore, the vast majority of their borrowers should be able to pay them back on time. By contrast, most small online lending firms don’t have access to that wealth of customer info. Thus, they’re more likely to lend to people who won’t repay them.
As time passes, Working Capital Terms should help American Express to achieve growth. That’s because many entrepreneurs may be able to build up their businesses because of the funds they borrow from American Express. As those companies expand, their owners might borrow more money from American Express, and perhaps they’ll start utilizing other financial services as well. The end result is that American Express will enjoy increased revenue.
For all of these reasons, American Express has publicly projected great confidence in Working Capital Terms. Take, for example, the sentiments of Susan Sobbott, American Express’ global commercial payments president. In at least one interview, Sobbott has said that American Express will outperform its rivals in providing online loans to small businesses. She has also stated that the company is unconcerned about the falling stock prices of some of those other companies.
What Lies Ahead
In the end, it seems safe to predict that internet lending is here to stay. Many of the gigantic financial organizations that have yet to get involved in it will probably change course due to the strong marketplace demand.
It’s a fascinating time to observe the financial industry. In recent years, it’s undergone some of the most serious, sustained, and significant disruptions in its history. And it’s extremely difficult to forecast which companies will be the most successful online lenders. Will the smaller firms be able to overtake the financial giants? Will the larger companies skillfully navigate the realm of online loans and reestablish their dominance? It’s very possible that all of these businesses will find ways of coexisting with one another.
Whatever the banking sector looks like decades from now, there’s one piece of good news that these changes seem to suggest. Small and midsize business owners will probably have more places to apply for loans than ever before, and that fact could prove to be a boon for the world’s economy.