The Small Business Owner’s Guide to B2B Lending
Business-to-business or B2B lending enables small businesses with other businesses as their customers to pay for operational expenses or investments, such as equipment upgrades and factory expansions.
The most common examples of B2B businesses include software-as-a-service (SaaS) providers and e-commerce platforms that often come with subscription-based models. These types of businesses typically require more working capital, depending on their client base and industry. As such, they need business lending options that will give them easy access to funds when they need it the most.
While B2B loans from traditional banks can be part of these financing options, B2B firms are increasingly turning to alternative financing, such as business lines of credit and merchant cash advances, from non-bank lenders. In 2024, 40% of small business owners applied for a business line of credit, higher than the 33% who applied for traditional business loans. Additionally, applications for large bank financing dropped from 44% in 2023 to 39% in 2024.
Those who did not apply for financing at all said that they expected their weak business financials to disqualify them. This is the reason why many business owners are considering online B2B lending providers, as their processes and requirements are more accessible than traditional banks.
In this article, you’ll learn more about B2B lending, including:
What its benefits are
How it differs from traditional loans
The types of B2B financing available to small businesses
3 Benefits of B2B Lending
Thanks to advances in fintech and lending platforms, B2B lending has become quick, streamlined, and convenient for small and medium-sized businesses (SMBs).
Below are some of the major benefits of this business financing solution.
1. Cash Flow Coverage
The operational expenses of B2B companies can be higher, especially if they’re offering customized products and services or catering to global companies. It can also be challenging to collect payments on time since each enterprise client can have its own invoicing systems and payment cycles.
As a result, there may be months when there’s less cash to go around because of unpaid invoices or unexpected expenses like machine repairs. This is where B2B lending comes in. It provides a cash flow bridge that helps SMBs maintain production, avoid delays, and prevent downsizing.
2. Easier Eligibility Requirements and Application Process
Alternative lenders offer a convenient application process through their websites. Some can even give approvals and disburse cash in a matter of hours.
The required documents and underwriting process are also less strict compared to banks and financial institutions. The primary qualification for B2B financing is creditworthiness, including historical financial performance and annual revenue. As such, you may be required to submit your income and cash flow statements, and business and personal credit scores.
3. Payment Flexibility
B2B financing can have flexible repayment terms, depending on the lender and the funding type. Providers can also offer tailored solutions based on your business needs to make sure that you have full control over your cash flow.
Lenders may offer weekly, biweekly, or monthly repayment options. Additionally, many business lines of credit providers don’t have prepayment penalties, so you can pay off your loans quicker without any fees.
Key Differences Between B2B Lending and Traditional Bank Loans
At this point in your business growth, you may be deciding whether to apply for a traditional bank loan or alternative funding. Here’s a breakdown of the key differences to help you determine which option best meets your needs:
Eligibility requirements: Traditional bank loans have more complicated underwriting processes and documentation because banks want low-risk applicants. Meanwhile, alternative lenders are willing to take on more risk, provided that you can show that your business has growth potential and can afford to repay.
Application processes: Because of the many documents required, traditional bank loans often take weeks, or even months, to be processed. This can be challenging for businesses that need funding immediately. Meanwhile, B2B lending can be approved within hours through an online application.
Interest rates and fees: Bank loans tend to have lower interest rates and fees because of their strict screening process, while B2B lending can have higher interest rates and fees because these lenders are exposed to more risk.
Loan amounts: Traditional loans can have higher loan amounts, especially if you have collateral. Meanwhile, B2B lending has lower loan amounts that highly depend on your annual revenue.
Repayment terms: Bank loans can have longer repayment periods depending on the loan program. However, they mostly stick to monthly payments. B2B financing tends to have shorter repayment periods, but more payment flexibility.
4 Examples of B2B Lending Solutions
If you decide to go with alternative funding, there are several B2B financing options in the market. Below are some of the most common ones due to their easy access and streamlined application processes.
1. Business Line of Credit
Similar to a business credit card, a business line of credit is a revolving fund you can withdraw from at any time and for any purpose.
The credit limit is based on your financial performance, such as annual revenue, and is typically higher than that of credit cards. In general, business lines of credit also have lower interest rates.
The repayment period is shorter than traditional business loans, and payments can be made weekly or monthly. For example, Backd’s business line of credit payments can be made weekly within six or 12 months.
2. Working Capital Advance
A working capital advance allows you to cover your operational expenses, like utilities and payroll. You will receive a lump sum upfront, and the amount you get depends on your cash flow and annual revenue.
This is an ideal setup for growing businesses that want to establish a credit history in order to apply for traditional financing in the future. Working capital advances are also a good option for companies with seasonal fluctuations, as these funds can help stockpile inventory for the peak season and cover expenses during lean months.
3. B2B Buy Now Pay Later
B2B Buy Now Pay Later (B2B BNPL) allows you to make purchases with no or little cash upfront. This means you can reserve your cash flow for other expenses or make a larger transaction. Some B2B BNPL providers may offer lower interest rates than credit cards.
While you can use B2B BNPL to make purchases for your business, it can also be used as a customer payment method. For example, with BackdPayments, you are paid instantly while your customer receives the convenience of flexible installments. This minimizes your risks while increasing your customers’ purchasing power.
4. Invoice Factoring
With invoice factoring, a third-party factoring company buys your unpaid invoices, or accounts receivable. In exchange, they will advance you a lump sum, which is a percentage of the total value of the unpaid invoices.
The factoring company then collects these invoice payments directly from your customers. When the invoices have been paid, the factoring company will pay you the remaining balance minus a factoring fee.
This funding solution is ideal for growing startups since factoring companies prioritize creditworthiness. That said, since this is not a loan, new businesses won’t be able to use this solution to build credit history.
Get Stress-Free B2B Financing With Backd
Alternative financing options like B2B lending can help you stay on top of your expenses and open doors to opportunities. At Backd, it’s our mission to make funding accessible to small businesses so you can focus on your growth.
Our Business Line of Credit provides up to $750,000 in funding and can be used for any purpose. We also offer a Working Capital Advance, which provides up to $2 million that can be repaid weekly, semi-monthly, or monthly.
We do a soft credit pull to protect your credit score during the application process. Additionally, you can receive approval within as little as 6 hours once you submit your application.
Our eligibility requirements include:
$100,000 in monthly revenue
A credit score of 650+
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for two years for a Business Line of Credit and one year for a Working Capital Advance
Apply now to get quick B2B financing that supports your growth.
