Have you ever applied for credit lines online before? Startups like On Deck Capital Inc., LendingClub Corp. and Square Inc. pioneered the online marketplace for business lending, giving small companies quick access to modest-sized loans and lines of credit.
Now, American Express (AmEx) is about to join them at the online business loan frontier with a new venture called Working Capital Terms (WCT). The idea is to give quick loans to AmEx's business customers, who can then pay vendors with the proceeds.
The plans call for AmEx to debut its new online lending platform shortly. WCT will offer loans from $1,000 to $750,000, charging 0.5 percent on a 30-day loan to 1.5 percent for a 90-day loan. WCT expects to deposit loan money into customers' vendor accounts within two days of approval, making clear the money is from the borrower, not WCT.
By contrast, On Deck Capital Inc. offers business loans from $5,000 to $500,000, whereas Square Capital Funding provides merchant cash advances to customers based on their volume of credit card business with Square Inc..
WCT hopes to gain market share by offering competitive pricing with online convenience. Building on AmEx's long involvement with small and medium-sized businesses in a credit market that it dominates, WCT is aimed at businesses which need to pay vendors which don't accept credit cards.
WCT is meant to fill the gap between when small businesses have to settle accounts with their vendors and the time they actually collect their own accounts.
In part, the small online business lenders are victims of their own success, as it gets harder to new secure funding for growth. AmEx understands the capital markets extremely well, has deep pockets and will be able to bring fresh resources to the marketplace for small business loans.
The largest existing marketplace lenders have been going through a rough patch apparently. The stock of LendingClub Corp., the market leader, is down 63 percent this year, with No. 2 On Deck Capital Inc. slumping 52 percent and Square Inc. falling 32 percent. The current lenders concentrate on borrowers who don't qualify for bank loans, which makes their loans riskier and thus more expensive.
WCT is not necessarily looking to lend to shaky businesses, and thus can offer better loan terms than its rivals can. AmEx is already involved in longer-term business loans of up to $2 million via its partnership with online lender Lendio. It also has a merchant loan business in which customer loans are repaid by AmEx receivables.
AmEx has had a recent stumble of its own. Just last year, it endured a very public split with Costco, its biggest co-brand partner that serves a whopping 81 million members. Visa displaced AmEx in the co-branding venture.
Wells Fargo, the No. 3 bank in the U.S., has announced its intention to begin offering small business loans online, and J.P.Morgan Chase is partnering with On Deck to facilitate loan processing.