In the digital age, a lot has changed about how businesses operate — and a lot of new data is being generated in the process.

This creates new possibilities for judging a consumer or merchant's creditworthiness. Square and PayPal have been taking advantage of this for years with models that rely on a merchant's sales history to determine their likelihood to repay a loan, and American Express is ready to compete with them head-on.

"We have all of this great data on our card member base and we are using this information to present the offer of Business Loans," said Gina Taylor Cotter, senior vice president and general manager of global commercial financing at American Express. "We are taking advantage of the information we have as a business, and making this offer to select business card members."

Gina Taylor Cotter, senior vice president and general manager of global commercial financing at American Express.
Small merchants, big data
"We have all of this great data on our card member base and we are using this information to present the offer of Business Loans," said Gina Taylor Cotter, senior vice president and general manager of global commercial financing at American Express.

American Express Open cardholders will be able to sign up for the Business Loans option online, choosing short-term loan amounts ranging from $3,500 to $50,000 over a one-, two- or three-year payback plan. Amex provides a decision in real time, with an APR ranging from 6.98% to about 19.997%.

"In launching Business Loans, we are trying to meet one of the biggest financing gaps for small businesses, that being small loans at an affordable price," Taylor Cotter said. "We have done some research on this and we are trusted providers, so this puts us neatly between banks that may have a longer application process and the online lenders who are fast, but maybe a bit more expensive."

Research from the Federal Reserve Small Business Credit Survey indicated to American Express that 44% of small businesses wanted loans of less than $50,000 and there was an opportunity to provide that type of service.

The new offering also puts American Express Open in a position to guard against merchants jumping to PayPal or Square when they need financing.

Since the U.S. economy has shaken loose from its doldrums, banks have in turn loosened their small-business lending to a point where programs like Square Capital and others positioned to move into the cash-advance or small-loan game saw a dip in business.

PayPal Capital launched four years ago, looking to break into the cash advance landscape and pitching no-interest loans. The program operated on a fixed fee, with merchants repaying the loan based on the percentage of daily sales received through PayPal accounts. Square's program operates on a similar model.

"American Express has decades worth of experience in lending, including substantial experience in small-business lending," said Gil Luria, director of research for equity capital markets at D.A. Davidson & Co. "Given the late business cycle benefit to small-business growth, this is a good time for American Express to expand lending into this segment."

Although PayPal and Square are in this arena as well, Luria said, small-business lending "is still very fragmented and American Express has considerably more experience and data in the market."

Because the offer is going to cardholders that Amex already feels comfortable with based on past data, it takes the approval process only seconds online, and the money being lent is in the cardholder's linked business bank account in three to five business days.

A year ago, American Express worked with Intuit to incorporate Working Capital Terms into Quickbooks, allowing Amex Open credit card customers to request a loan as small as $1,000, to be paid back in 30 to 90 days.

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