#b2b financing

In addition to fuelling the global growth of entrepreneurship, the Covid-19 pandemic is hailed as a boon for the Indian startup economy Indian startups raised approximately $42 billion in 2021 and 42 new companies joined the unicorn league. The number of B2B (business to business) marketplaces has increased, and this increase in the number of businesses in the market now demands simultaneous growth in the B2B financing sector as both new and old SMEs continue to struggle for sustenance

What is B2B financing?

As the name suggests, B2B financing refers to the different financing options available to businesses that deal with other businesses, including bank loans as well as a range of other alternative lending options. The stringent prerequisites of traditional bank loans were anyway difficult to meet and in the time of Covid they almost became impossible and businesses started turning to other financing alternatives. The advancements in FinTech provide a wide range of non-bank B2B financing options to choose from.

What are the benefits of B2B financing from non-bank lenders?

Business loan applications to traditional banks require a lot of supporting paperwork and tedious processes to comply with, which becomes particularly challenging for small-scale or home businesses. A B2B financing service by Fintechs provides simplified checkouts and payments without the hassle of abiding by stringent bank rules- their application and lending processes being easier and the capital more accessible.

Alternate lenders are also credited for approving more financial transactions at a faster rate than traditional banks. Reports of the year 2019 show that the approval rate for bank loans was around 26% while the same for non-bank lenders was 56.6%. American financial consultant Marilyn Holt advocates alternate B2B financing services, arguing that non-bank lenders often specialize in certain types of loans suited for particular industries and therefore their services are value-added.

Additional benefits of availing non-bank B2B financing services are that they provide a lot of flexibility in their lending policies. The interest rate and credit period can be decided upon based on the capacity and needs of the business opting for such services. Non-bank lenders are also known to use the latest innovations in Artificial Intelligence in FinTech to provide more technologically advanced services than traditional banks.

What are some of the popular types of B2B financing?

1. Direct B2B lending: These are loans taken from non-bank lenders and were the biggest source of b2b lending in 2021. Direct loans are particularly helpful for SMEs which often fail the stringent qualification criteria for bank loans.

2. Venture Debt: These alternative lenders take a part of the company’s ownership in exchange for capital- the percentage of ownership to capital being negotiable. This is helpful for businesses that do not have enough collateral to get a bank loan. The benefits of venture debt are more than financial as they help establish industry connections for their clients.

3. Invoice financing or factoring: Here, the alternative lender provides you with an amount that is equivalent to a percentage of your unpaid invoices. In this arrangement, the lender uses the invoices as collateral for cash flow.

Takeaway

Businesses need not rely solely on banks for B2B lending/ B2B financing as the market now has alternatives available in the form of B2B lending companies. The SMEs will benefit hugely as the latter’s policies are specially designed to meet the needs of B2B marketplaces and companies.