B2B Financing: How It Works, Different Types, and Benefits

by Kieran Daly
December 18, 2023
B2B Financing: How It Works, Different Types, and Benefits

When it comes to keeping your business-to-business (B2B) company flourishing, it’s vital to make sure you have the financing you need. For B2B companies looking to receive or offer flexible financing solutions to clients, there are many options available. 

Over the past few decades, new B2B financing solutions have evolved. You no longer have to go to the local bank to get a loan to support your growing company. From venture debt to lines of credit and buy now pay later (BNPL), there is a financing solution for every business. 

Here is everything you need to know about B2B financing and the different types of business solutions available. 

What Is B2B Financing?

B2B financing is when a small business, or company with other businesses as its customers, needs money to fund or expand its operations. It includes several financing options, including bank loans and alternative financing like venture debt. Business financing is also used between companies that need to finance or pay for their operations, such as net terms or invoice factoring. 

Business financing has expanded significantly in recent years. While a few decades ago startups and other types of companies would either need private investors or bank loans to get the funding they needed, today there are many alternative lenders that can help businesses come up with a financing solution. In fact, the alternative financing market was valued at over $10 billion in 2022.

Types of B2B Financing 

So what types of B2B financing are there? Here are the main financing options available for B2B businesses. 

Business Loans 

Business loans are among the most common types of B2B lending for businesses. These loans are intended for business purposes. Companies can get loans from traditional banks, online companies, or the U.S. Small Business Administration, which offers loans for qualifying small businesses. 

To get a business loan, the lender will ask you to meet specific requirements during the application process. You may need to provide your credit score, cash flow statements, business plan, and more with your loan application. 

Depending on the type of business loan you apply for, it can be difficult and cumbersome to get. But they often offer favorable interest rates and repayment terms, making business loans among the most common types of financing for businesses. 

B2B Buy Now Pay Later

Another type of B2B financing is BNPL. With B2B BNPL, buyers can purchase goods or services with extended credit. In other words, you can get the items you need now and pay for them at a later date or in installments. It’s a great way to make the purchases you need without needing to put all of the money upfront. It’s ideal for businesses that need some extra time as they wait for funding or for payment from customers. 

You can also offer this option to your B2B clients by partnering with a lender that offers this service, such as Backd. All you need to do is connect your platform with the lender’s API so you can offer payment plans to your customers. Adding a B2B BNPL payment option can help you grow your company and enhance your cash flow over the long term. 

Business Line of Credit 

A business line of credit, or a revolving credit facility, is a predetermined credit line available to businesses. B2B companies can use a business line of credit to fill a cash flow gap, buy inventory, and more. 

Unlike a business loan, you don’t receive a lump sum. Instead, you have a set amount of funds available to use when you need them. You also only pay interest on the amount you withdraw. When the amount you borrowed is paid back, it’s then available to use again, similar to how a credit card works. 

A business line of credit gives more flexibility than a traditional loan. They are generally suited for companies that have seasonal cash flow issues or are unsure about upcoming costs. 

Venture Debt 

Venture debt is a type of debt financing that provides venture-backed companies with funds. It’s usually provided by specialized banks or non-bank lenders. This type of funding is aimed at startups that have a lot of high growth potential. 

Lenders will use the borrower's most recent venture capital equity to set out the terms of the loan. The amount and conditions provided depend on a number of factors, such as the equity provided, the level of growth of the company, and the reasons for the loan. 

Invoice Factoring

With invoice factoring, a small business can sell some of its outstanding B2B invoices to a third party in exchange for money. The factoring company will give you the money right away, minus a few processing fees, and then collect the payment directly from your customers. 

This means you don’t have to handle monitoring invoices or going after your clients for payment. The invoice factoring company instead works directly with your business customers and handles the collections process. 

Net Terms 

Net terms are common practice among B2B companies. With net terms, sellers extend credit to their customers, allowing them to pay their invoices a number of days after the order is placed or service is rendered. 

In other words, the customer doesn’t have to pay right away. Also referred to as credit terms or trade credit, the payment is delayed for a period of time, usually in 30-, 60-, or 90-day periods.

Benefits of Getting B2B Financing

Business owners looking for some extra cash can benefit from getting B2B financing. Here are some of the benefits of opting for business financing:

  • Improve cash flow: With B2B financing, you can get the funds you need from lenders, which can help you manage your cash flow, especially during slower months of the year. 

  • Mitigate risk: Using B2B services can help you reduce the risk of delayed payments or defaults from clients. If you're waiting for payments from clients but need to pay your bills, you can look at ways to finance your operations while you wait for payment. 

  • Facilitate growth: Depending on your business needs, financing can give you the funds you need to expand and grow your company. 

  • Choice of financing options: There are a range of financing options that can be tailored to fit what your small business needs, whether that's a line of credit, working capital, or traditional loan. 

Find the Right B2B Financing for Your Small Business 

If you own a B2B business, there are many options to get the B2B financing you might need to support your growing company. You don’t need to rely on financing from a local bank to help you with your cash flow gap or expand your company operations.

An alternative lender like Backd can provide you with the funding you need. Whether you need a business line of credit or a working capital advance, you can receive your funding in as little as 24 hours.

And if you want to offer a B2B financing solution for your customers, sign up to be a BackdPay partner. As a BackdPay partner, you’ll be able to get paid instantly, while giving your B2B customers the flexibility to pay later. 

What would you do with the right amount of capital?

Working Capital Advance

Easy payment structures offer amounts with fast turnaround, Simple and easy process to access working capital.

  • Flexible - no collateral required
  • $10K - $2M
  • Terms up to 16 months
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Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

  • Draw funds anytime
  • $10K - $750K
  • Unlimited terms, incredible rates
  • Soft credit pull that doesn't affect your credit score