Getting a small business loan may seem simple enough. You may envision going to a local bank or credit union and filling out an application. The lender will review your credit and your business information, and you’ll hear back about the loan, right?
In reality, four in five businesses are denied financing from banks. Those loans are a lost opportunity for entrepreneurs to run or expand their businesses. What other options are available for small businesses?
B2B funding is a way to connect with other businesses willing to lend to a borrower like you. But what is B2B funding, and how can you leverage this as a financing option? Read on to learn more.
What Is B2B Funding?
Most people think of the retail side of businesses, such as selling goods or services. Your own company may work directly with consumers or clients. This is known as a business to consumer, or B2C, transaction.
But when two businesses interact with each other, it is known as a business-to-business, or B2B. The exchange is much different than B2C. B2C might be a one-time transaction, whereas a B2B relationship tends to be long term.
When you are looking for funding for your business, a traditional lender isn’t acting like another “business.” Financial institutions serve a very different purpose than businesses. Their products and services revolve only around financial transactions.
B2B funding means that instead of getting a bank loan, you get a loan from another business.
Why Use B2B Funding?
A bank or credit union denies you a loan because they consider your business to be too much of a risk. However, traditional lenders often have strict underwriting standards. If something about your business doesn’t meet their criteria, you’ll be turned down.
For example, if you are a newer business, you may have trouble showing a history of handling credit. Or you have a seasonal operation that has fluctuations in cash flow. Or you have a history of bad credit, and even though you’ve made strides, your credit score is still lower than the bank’s threshold.
Banks and credit unions will usually either “score” a loan or take it in front of a loan committee for approval. If the loan committee doesn’t like something about the loan, you’ll be denied. You can try going to a different bank or credit union, but you won’t always be successful.
Often traditional lenders have certain “types” of loans that they want in your portfolio. If your business is unique or doesn’t fit inside their model, they don’t know how to measure your success, and the lender will deny your loan.
Unlike traditional banks, B2B lenders can set their own terms. They can look at your business situation and determine your loan. No loan committee, no scoring — just funding from another business that understands how companies operate.
How B2B Funding Can Boost Your Small Business
B2B funding can be used for a variety of purposes. When you find the right business to work with for your financing, you could use the proceeds for any of the following:
- Purchasing or refinancing of real estate
- Inventory lending
- Payroll funding
- Financing for expansion
- Equipment purchases
- Consolidation of business debt
- Startup business funding
You may have identified your small business’s needs, or you might be preparing for future financing needs. Whatever the case, you should explore B2B funding as an alternative to traditional financing.
Benefits of B2B Funding
As mentioned, banks often have strict requirements for a business loan that may mean you won’t qualify. But what are some benefits to choosing B2B funding over a traditional bank loan?
Unlike a bank approval process, B2B lenders make their own decisions for each loan. Bank loans can take weeks or months to approve, especially if there is collateral involved.
Banks will require a lot of documentation, and sometimes this can be difficult for a small business to produce. B2B lenders have lighter documentation requirements.
Banks will usually have specific loan programs with terms outlined. With B2B funding, you have more options for loans that can be designed to meet your needs.
Less Stringent Requirements
Banks prefer only lending to established businesses with owners that have solid credit ratings. B2B lenders do not have the same requirements and have higher rates of approval.
Often, banks want collateral for the loan, in either business or personal assets. B2B lenders will have different requirements around collateral if the owner can demonstrate the ability to repay.
B2B Funding Qualifications and Terms
With Alex Dee, you can get B2B financing through a matched partnership with another business. You can get loans with terms of two to five years that have no prepayment penalty. Approved loans will not have a payment due in the first 30 days.
When you apply, you’ll have only a soft pull on your credit report. This means that your credit score will not be impacted simply by inquiring. Unlike banks that may want you to make some type of investment, there is no deposit required.
Our goal is to serve clients that need financing to work with their own clients. These can be anything from lawyers to digital agencies. We focus on companies that have a solid track record with their clients.
Avoid Working With Institutional Lenders
Traditional banks can be a headache for small businesses. Unable to meet the requirements or find a lender who understands their business, they may spend a lot of time on an application only to be turned down. A match with the right B2B funding partner can be the solution for the financing you need.