What Are Business-to-Business Loans, and How Do They Work?
The business-to-business (B2B) industry is booming, particularly in e-commerce. In 2024, B2B e-commerce sales surged 10.5%, exceeding $2 trillion. This market is anticipated to expand 7.8% from 2024 to 2028, reaching over $3 trillion. To meet this future demand, companies may need to seek increased funding through business-to-business loans.
Unlike business-to-consumer (B2C) companies, B2B firms offer products and services to other businesses. As such, having large enterprises as primary clients can require significant investments in technology, machinery, and staff, especially since some clients have unique business needs.
In this article, you’ll learn more about business-to-business loans, including:
What they are and their use cases
Who the main B2B loan providers are
The differences between B2B loans and B2B financing
What Are Business-to-Business Loans?
In general, conventional business loans can be used as business-to-business loans that cater to the unique needs of this industry. Some examples of B2B firms that may benefit from these loans include:
Wholesalers supplying products to B2C retailers
Software-as-a-service (SaaS) companies offering cloud-based tools, infrastructure, and software on a subscription basis
Companies supplying industrial cleaning services to plants and factories
Accounting firms supplying bookkeeping services to small businesses
As their client base grows, small business owners need working capital to manage their cash flow so they can make strategic investments. For example, they might purchase more service vehicles, upgrade to new equipment, or even build a bigger factory.
Below are some use cases for business-to-business loans:
Emergencies and cash flow gaps, like replacing critical machines
Long-term, capital-heavy investments, like commercial real estate
Seasonal expenses, like increasing inventory during holiday sales
Debt refinancing and consolidation
Research and development for new offerings and markets
3 Business-to-Business Loan Providers
There are many loan programs available for small B2B companies. However, these programs are often term loans, where a lump sum is deposited to your business bank account or checking account.
Like a traditional small business loan, B2B loans have an interest rate and repayment terms. They also have an annual percentage rate, which includes other fees like origination (the cost of processing a loan).
Business-to-business loans are available from three major groups.
1. Banks and Credit Unions
The eligibility requirements of traditional financial institutions highly depend on the lender and loan program. Banks are the strictest, requiring extensive documentation like tax returns, collateral, a business plan, financial statements, credit score, and credit history.
You may also need to make a down payment, and the repayment schedule is typically fixed monthly payments. There may also be prepayment penalties, which are fees for paying off the loan early. Additionally, the application process can take weeks and even months, which is not ideal if you need the money immediately.
Because of these requirements, this business loan option is generally not accessible to new businesses or startups.
However, banks also tend to have the most competitive loan terms, such as lower interest rates, longer repayment periods, and higher loan amounts.
Meanwhile, credit unions tend to be more flexible, requiring less paperwork and even considering low credit scores.
2. Private Lenders
Private business loans are available from alternative and online lenders. Many private lenders require minimal documentation and may accept fair or even bad credit. Once approved, funding can be available within several business days.
However, private lenders may have higher fees and interest rates because they take on more risks, especially for unsecured loans. That said, private business loans can often be a lifeline for many small businesses that need urgent funding.
3. U.S. Small Business Administration (SBA) Loans
SBA loans don’t come directly from the SBA. Instead, they’re government-subsidized programs with competitive, fixed-rate terms that are made available through partner lenders.
Under these programs, the SBA will pay up to 85% of the loan amount (if $150,000 or less) should the borrower default. In particular, the 7(a) Loan program can be used for just about any business need, including long-term real estate loans and short-term working capital financing.
The SBA also offers microloans of up to $50,000. However, revenue from a microloan can’t be used for debt repayments and real estate purchases.
Getting a B2B loan through the SBA is best for businesses who are struggling to be approved for financing through other lenders.
Traditional B2B Loans vs. B2B Financing
Business-to-business loans from traditional banks can shut out new businesses or companies that want to rebuild their credit history. As a result, alternative lenders are offering other B2B financing options, which are often more flexible and customizable.
The requirements are also more manageable and focus on financial performance instead of credit history. That said, alternative funding may have higher fees and lower borrowing amounts than traditional business loans.
Below are some examples of available B2B financing.
Business Line of Credit
A business line of credit is a revolving fund you can withdraw from at any time and for any purpose, similar to business credit cards. The lender’s credit approval assigns a credit limit based on your financial performance, such as annual revenue. This credit limit is typically higher than credit cards to accommodate much more expensive purchases.
Repayments are more flexible, and they can be weekly or monthly. The repayment period is also shorter than traditional business loans. For example, a Backd Business Line of Credit is repaid weekly over six or 12 months.
Working Capital Advance
A working capital advance provides you with funds to cover your operational expenses like rent and payroll. The amount you get depends on your cash flow and annual revenue. This is a plus for businesses that are growing but haven’t established much of a credit history.
Working capital advances are an option for companies that experience seasonal fluctuations. This funding helps to sustain operations through these disruptions.
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.
Not only can you use B2B BNPL to make purchases for your business, you also offer it to your B2B customers as a payment method. For example, with BackdPay, you are paid instantly while your customer receives the convenience of flexible installments. This allows you to both minimize your risks and increase your customer’s buying power.
Invoice Factoring
Invoice factoring is when your small business sells some of its unpaid invoices to a third party known as a factoring company. In exchange, they will advance you a lump sum, which is a percentage of the total value of the unpaid invoices, known as accounts receivable.
The factoring company then collects payment for the invoices directly from your customers. When the invoices have been paid, the factoring company will pay you the remaining balance minus a factoring fee.
Venture Debt
This financing is available from non-bank lenders (or specialized banks). They give funds to venture-backed companies, which are often startups with a high growth potential.
The terms depend on the startup’s latest venture capital equity (or the money raised through selling ownership shares). Some startups prefer venture debt over having another round of funding, which dilutes the owner’s equity stake.
Peer-to-Peer (P2P) Business Lending
This funding uses online platforms to bypass the middlemen (in this case, the banks) and directly connect businesses to investors. These investors can either be large hedge funds or mission-oriented individuals, like those who invest via crowdfunding platforms.
The main selling point of this type of loan is that it’s simple, fast, and convenient. The application can be made entirely online. That said, this funding often has higher origination fees and interest rates.
Get Flexible and Accessible Funding With Backd
Business-to-business loans can help entrepreneurs optimize their working capital and increase revenue streams. However, there are other B2B financing solutions that can be tailored to the unique needs of small businesses.
For example, Backd’s Working Capital Advance offers up to $2 million in funding, which can be repaid daily, weekly, or semi-monthly. Meanwhile, our Business Line of Credit provides up to $750,000 and can be used for any purpose.
Plus, we do a soft credit pull during the application process so it won’t affect your credit score. Once you submit your application, you can receive a decision within 24 hours.
Our eligibility requirements include:
$100,000 in monthly revenue
A credit score of 625+
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for one year for a Working Capital Advance and two years for a Business Line of Credit
Apply now to stop worrying about your cash flow and focus on growth.
