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Merchant Financing: Amazon, Square, PayPal, Amex

Dec. 19, 2017
Small Business, Small Business Loans
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For small-business owners, finding financing can be a complicated process. But for entrepreneurs who are Amazon sellers, use PayPal and Square, or take American Express as payment, the process has become a little more seamless.

All four companies offer their small-business clientele funding opportunities directly through their platforms.

Financing through these providers is a good alternative to traditional small-business funding, especially if you don’t have a long business history or excellent personal credit. Each provider looks primarily at your sales history and transaction volume to qualify you for financing.

The process is also fast and convenient.

However, short repayment periods and automatic deductions of payments based on credit and debit sales can make them a tricky bet for business owners looking for flexible payment options.

Here, we break down options from Amazon Lending, Square Capital, PayPal Working Capital and American Express Merchant Financing.

At a glance: Amazon vs. Square vs. PayPal vs. Amex

 Amazon LendingSquare CapitalPayPal Working CapitalAmerican Express Merchant Financing
Borrowing CostsAPRs not disclosed

For more details
One-time fee of 10% to 16% of the loan, on averageEqualvant to 15% to 30% APR Fixed loan fee between 3.5% and 28%
Repayment TermFixed monthly payments up to 12 monthsFixed daily percentage of credit card sales, up to 18 monthsAutomatic deduction of 10%, 15%, 20%, 25% or 30% from each PayPal sale.Fixed daily percentage of credit card sales
Loan Amount$1,000 to $750,000$500 - $100,00025% of yearly sales up to $97,000 for the first loan, $125,000 for future loans$5,000 to $2 million
Funding Time Next dayWithin a few daysWithin minutesWithin days

Amazon loans

Amazon offers its retailers fast funding to help replenish stock, making it a convenient option for merchants looking to bulk up inventory before major holidays or to grow their business.

Borrowers are invited to apply for Amazon funding directly from their seller account.

Amazon offers a high borrowing limit, with loans maxing out at $750,000. With approval tied to your sales history more than your credit score, it can be a good option for borrowers with a poor credit score.

Although Amazon does not disclose an APR or interest rate range for its loans, the company told Bloomberg that rates tend to be lower than those of credit cards (business credit cards, for instance, have APRs of 12% to 22%) and merchant cash advances (APRs from 40% to 350%). Repayments are deducted from your Amazon account monthly for up to 12 months.

For more details, read our take on how Amazon Lending works.

Square Capital loans

Point-of-sale provider Square launched Square Capital as a way to proactively meet its small-business owners’ financing needs. Instead of asking businesses to apply for a loan, Square Capital reviews your transaction history and alerts you when you qualify for funding.

Loans tend to be on the smaller size (The company says the average loan amount is $6,000) and max out at $100,000. Square Capital charges a onetime fee averaging 10% to 16% of your loan. However, these loans do fill a niche for small-business owners who just need a couple thousand dollars to buy inventory or expand their marketing presence.

When it comes to repayment, Square Capital takes a fixed daily percentage of your credit card sales, mirroring how high-cost merchant cash advances work. Also, Square Capital taking fees upfront means you won’t benefit financially from paying back your loan early.

For more details, read our take on how Square Capital works.

PayPal Working Capital loans

Payment processing company PayPal launched its lending arm, PayPal Working Capital, in 2013.

PayPal limits loan amounts to 25% of your yearly PayPal sales, or up to $97,000 for the first loan, making it a good option for borrowers looking for small loan amounts.

Instead of charging an interest rate, PayPal charges a fixed fee based on your sales volume, loan amount and other factors. That translates into an annual percentage rate of 15% to 30%, according to the company.

Repayment is based on a percentage of each transaction (10%, 15%, 20%, 25% or 30%). You can choose the percentage rate, but the lower it is, the more you’ll end up paying over the life of the loan.

Also, if you’re looking to pay off the loan early and save on fees, you’re out of luck: PayPal’s tiered fixed percentage system means you won’t save on fees when paying back the loan.

For more details, read our take at how PayPal loans work.

American Express Merchant Financing loans

Launched in 2011, American Express Merchant Financing offers four different financing options to merchants who accept Amex credit cards.

The amount you’re eligible for depends on your annual American Express credit card receivables; loans range from $5,000 to $2 million. The loans can be paid back in six-month, one-year or two-year terms. The company also offers a settlement, or monthly advance, which deposits a loan amount in your bank account every month on an ongoing basis — unlike the other three products, which disburse funds in a lump sum within days of approval.

Amex charges a flat borrowing fee ranging from 3.5% to 28%. Repayments are made daily and can come from four different sources: your American Express credit card receivables, all credit and debit receivables via your payment processor, all credit and debit receivables via account transfer, or payment from a business bank account.

Amex does offer substantial prepayment benefits if you’re able to pay back your loan early.

For more details, read our take on American Express Merchant Financing.

Other small-business financing options

If you don’t have a connection to Amazon, Square, PayPal or American Express, or you want to explore alternative financing options, there are numerous other ways to fund your business.

If you have an established business with strong revenue and you have strong personal credit, you can typically get the best rates from a bank or credit union. However, the application process from traditional lenders is often long and time-consuming.

You do have alternatives if you need cash fast or you don’t qualify for a traditional bank loan.

Alternative lenders offer small-business owners faster and more-convenient loan options. But APRs range from single to triple digits, so it’s important to understand what your total cost of borrowing is before taking out a loan.

Find and compare small-business loans

If you want to explore other financing options, NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.

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