american express working capital loan

When businesses are short on money for daily operations, they may need to look into working capital loans to keep things running. Working capital loans are short-term infusions of cash to help companies afford expenses like payroll, rent, utilities, and other costs of doing business. 

These loans—which can be fixed rate loans, lines of credit, or merchant cash advances—do come with a cost, however. It’s important to do your research to find a lender with a favorable rate and terms for your needs. Below, we’ve done the investigation for you and developed a list of the best working capital loans for different business situations.

This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

As an entrepreneur or small business owner, you may have many goals to grow your business, whether it’s launching an online store, expanding your marketing efforts, or buying equipment. These business needs could be supported by a small business loan.

Benefits of a small business loan

Financing options like a small business loan could help your business weather challenging times or grow during fruitful seasons. Some benefits of small business funding include:

  • Flexibility: As long as the usage of your funds aligns with the terms and requirements set out by your lender, you can use them in whatever way best supports your business.
  • Potential for business expansion: Financing can help business owners pursue opportunities that may not be attainable using their current resources. Whether you are thinking of adding a second location or want to boost your marketing efforts to attract a new audience, additional funds from a loan could help you pursue new possibilities.
  • Cover unexpected expenses: A small business loan could help you address gaps in cash flow or cover an unexpected business expense, like replacing equipment.

Common uses for small business funding

  • Purchase inventory
  • Equipment financing to buy new equipment or access funds to repair existing equipment
  • Smooth cash flow fluctuations
  • Access capital for expansion
  • Provide a signing bonus to new hires
  • Launch a marketing campaign

Types of small business loans

Lenders offer different types of small business loans and financing to meet the diverse needs of small business owners. Understanding the main differences between business loan options can help you find the right financing for your business.

Remember that terms and requirements will vary across lenders and financing types.

Term loans

A term loan provides a one-time lump sum to a business. Repayment for term loans is often done over a fixed period of time, with the borrower paying back the principal as well as the agreed-upon interest and any additional fees a lender may specify in the loan agreement. Term loans are often categorized by the lifespan of the loan: short, intermediate, or long.

Borrowers may be required to reapply to receive additional funding, unlike some credit lines. Term loans may be an attractive option for borrowers with a specific project in mind.

SBA loans

There are several Small Business Administration (SBA) loan programs that offer different types of business loans and credit lines. The most popular program, SBA 7(a) loans, offers up to $5 million loans.

SBA loans are partially backed by the federal government, and you’ll need to apply for these loans from an SBA-approved lender. The SBA sets the minimum eligibility requirements, but lenders can also set stricter requirements for their loans.

Line of credit

A line of credit gives a borrower access to a flexible credit line that can be used as needed. With a line of credit, you draw individual loans from your line and can do so as needed up to your available line amount. You only pay interest or fees on the loan amount that was drawn.

Common uses for loans drawn on a business line of credit include addressing gaps in cash flow, offering signing bonuses to attract top talent, or ordering additional supplies to prepare for seasonal demand.

Short-term loans

Short-term business loans are installment loans that you generally have to repay within three to 18 months, sometimes with daily or weekly payments. The loan amounts tend to be smaller than with longer-term loans, as the funding is primarily meant to cover immediate needs. You may find these loans have higher interest rates and fees than other lenders’ long-term loans.

Microloans are a type of short-term loan that, in the most basic terms, are loans of smaller dollar amounts that are often used to help small businesses or startups grow. The SBA’s Microloan Program provides loans up to $50,000 with a maximum loan length of 6 years. The average SBA microloan is $13,000.

Working capital loans

A working capital loan is a loan that a business owner uses to pay for everyday expenses. The name of the loan refers to how you use the financing, as your working capital is the amount of funds you have available to meet your short- term financial obligations.

Commercial real estate loans

A commercial real estate loan offers funding for purchases of non-residential real estate. While personal real estate loans are issued to individuals, commercial real estate financing is often issued to a business entity. Examples of commercial real estate include office buildings, retail stores, and hotels.

Equipment financing

Equipment financing includes any type of loan designed to fund the purchase or repair of equipment. Businesses can choose to either lease or take out a loan for their equipment needs.

Industry-specific loans

If you are a business owner with industry-specific needs, like bulk orders of food or modern medical equipment, obtaining an industry-specific small business loan could help ensure that you have the funding to thrive within your industry. Lenders may offer industry-specific financing for construction, retail, professional services, restaurants, and more.

Remember to check the terms set within the loan agreement to understand what your funds can be used for when applying for any financing.

Small business loan application and approval process

A small business loan application process can often be completed online, eliminating the time typically spent waiting in lines or filling out numerous forms. Some applications could take as little as 10 minutes, depending on a lender’s requirements and how prepared the borrower is to provide some basic business information.

What is required for a small business loan?

Small business loan requirements can vary depending on the lender and type of loan. Lenders might consider both the owner’s and business’ credit and finances, the business plan, financial statements, and the business owner’s experience. Some lenders may also list more specific requirements. For example, they may only offer loans to businesses that are at least two years old.

Lenders might consider many of the following factors when assessing a business:

  • Number of years in business: Some lenders may have tenure requirements to meet before you can apply or be approved for financing.
  • Business size and industry: Funding specifically for new businesses or startups might specify how many employees a business can have to qualify. Lenders may also specify what industries they are open to providing funding to in their application requirements.
  • Credit scores: The business’ credit history and business credit score, along with the owner’s credit history and score, can also factor into a lender’s review. Many business loans have a minimum credit score.
  • Revenue and profits requirements: Your business may need to meet a minimum monthly or annual revenue requirement for certain types of loans. Lenders could also consider how much profit you have and various financial ratios.
  • Collateral: Some types of business loans, such as equipment, real estate, and vehicle loans, require you to pledge assets as collateral. Unsecured loans may not require collateral, but you may still need to personally guarantee the loan.
  • Your business and loan plans: Lenders may want to know your plan for running and growing your business. They may also ask how you plan to use the loan to execute that plan.

How do I get a small business loan?

The application process depends on the type of financing you’re applying for and the lender’s requirements. If you’re trying to get a small business loan, here are some suggested steps.

1. Write a business plan

business plan can be important for starting a business and making strategic decisions. Lenders may want to see your business plan to better understand what you’re doing and how you plan to use the money they lend you.

2. Choose a type of business loan or financing

There are many types of business financing, and some options are more aligned with certain circumstances. For example, if you have several progress payments for a marketing plan or construction project, a line of credit could fit your situation.

3. Compare lenders and determine if your business qualifies

After narrowing in on a specific type of financing, you can start to compare lenders and their minimum eligibility requirements. You may even want to consider checking your credit scores to see how you might fare with different lenders.

4. Prepare your documents to apply for a loan

Some of the documents you might need include:

  • Your business plan and financial statements
  • Your business tax returns and employer identification number (EIN)
  • Your business bank statements
  • Business registration, licenses, and permits

Documentation required by lenders will vary depending on the type of business loan you are applying for and the amount you are approved for.

5. Assess loan offers and accept the one that’s best for your business

Some lenders may provide you with several offers with varying repayment terms, interest rates, and monthly payments that you can compare before choosing.

Finding the right small business financing

Before you apply for business financing, you may want to consider what needs you’re aiming to meet. Different financing options will offer different benefits, and factors like repayment terms and loan term lengths will vary across loan types and lenders. Understanding what you hope to use your funding for and preparing for the loan application process ahead of time can be a helpful first step to getting business funding.

An American Express Business® Line of Credit could help you get the funding you need to address gaps in cash flow or help you grow your small business. The application is designed to be simple and fully automated.

Amex has  had a fixed fee, short term, loan program, called “Working Capital Terms” which could be used to pay vendors by ACH. I used to use it occasionally, as the fixed fee was decent, equating to 6% or 9% APR, and the payments to vendors were fast and easy.  Then Amex started raising the rate, or at least the rate that was available to me. So I stopped using it. And then, although it continued to appear in my online profile, there was never any available borrowing power, so I stopped monitoring it regularly.

I had a number of theories as to why there was no borrowing power.

  • The lack of borrowing power seemed to occur more or less around the time I closed my business platinum card, so perhaps this was tied to having a business charge card.
  • They just didn’t like me any more.
  • They had discontinued the program altogether.

Well I can now eliminate theories numbered 1 and 3, because I happened to see that I now have some borrowing power again.

I was wondering if anyone else has had experience within the past few years with the Working Capital Terms program.

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