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Posted by Brett Romero - 28 August, 2019

Business Funding by B2B Lenders Instead of Banks

B2B lenders are making it easier than ever for small businesses to secure business funding.

You may already be familiar with Peer-to-Peer (P2P) Lending, in which individuals secure loans from groups of private investors. The B2B business funding model works similarly, but instead of focusing on individuals, they focus on small-to-medium businesses. Groups of businesses invest in lending money to other businesses.

B2B lenders are growing in popularity as an option for business funding. In fact, B2B FinTech recently became the second most popular funding option (second only to persistent traditional lending) by FinTech firms, according to Medici Research.

As a small business owner, you may be wondering if you should shop traditional banks or B2B lenders for your upcoming business funding. There can be a lot of underlying issues with working capital loans

To help you make your decision, here are 5 reasons to choose B2B lenders over traditional banks for business funding.

1. Securing business funding from B2B lenders takes less time

Traditional banks require a small mountain of paperwork before they even consider offering a business loan. According to Chron News, the application process generally ends up taking at least 60-90 days. So if you’re planning to receive business funding from a traditional bank, you need to plan ahead and give yourself lots of lead-time to secure that financing.

By contrast, B2B lenders can complete the application process and fund your business in as little as 7 days. With less red tape to navigate through, B2B lenders are far more agile than traditional banks. There are even a few B2B lenders, like BlueVine, that specialize in short-term financing. They can approve an unsecured line of credit in as little as 24 hours with no paperwork necessary!

working capital

2. B2B lenders will work with lower credit scores

Traditional banks are fairly risk-averse. They need documentable evidence that their borrowers are extremely likely to fulfill the terms of the loan. So they rely heavily on credit scores to qualify borrowers for business funding. If you don’t have a great credit score (or your business’s credit score is subpar), you will be penalized with a substantially higher interest rate. That is if you can qualify for a loan at all. NerdWallet reports that traditional banks want to see a credit score of 680 or higher.

B2B lenders are willing and able to accept more risk than traditional banks. They’ll be more inclined to work around credit issues. Yes, you’ll still pay a premium interest rate to offset the increased risk, but you’re more likely to qualify for a loan from B2B lenders than from traditional banks in that case. In fact, some B2B lenders, like National Funding, don’t even have a minimum credit score requirement. 

3. B2B lenders offer smaller loans

For traditional banks to make your business funding worth their time and effort, the amount needs to be fairly significant. Remember, they invest many man-hours in the application process alone. Then there’s the thorough underwriting process and the loan servicing for the term of the loan. The minimum amounts vary by bank, but many traditional banks need the loan to be $250,000 or more to be worth their while.

B2B lenders, on the other hand, have streamlined the process so they can achieve acceptable returns with smaller loans. Some B2B lenders, offer short-term business loans of as little as $1,000! If your small business only needs a small amount of business funding, B2B lenders are the way to go.

4. B2B lenders are an ideal financing option for startup capital

Starting a business isn’t for the faint-of-heart. Especially when you need to secure startup capital. Many entrepreneurial hopefuls head straight to their local bank to apply for a new business loan (because let’s be honest, that’s the process according to TV!). But, for the reasons we’ve already mentioned, like long lead-time, stringent credit requirements, and high loan minimums, traditional banks are far from the best source of startup business funding. 

For all those same reasons, B2B lenders are a better bet for your brand new business. They are far more likely to work with you when you haven’t been in business long enough to meet the qualifying criteria of the traditional banks. Which leads us to our final point...

funding options

5. B2B lenders offer more flexible business funding options

With traditional banks, borrowers have very little control over the terms of the loan. The bank holds all the cards, so they are able to dictate the interest rates, maturity dates, and monthly payment schedules that best suit them. 

But with B2B lenders, the borrower has the power to make requests based on their unique circumstances. While you may not have much say in the interest rate the B2B lenders are able to offer, you can, for example, request a specific loan term (why pay interest on a 5-year loan when a 4-year loan will work perfectly for you?). Or you could request higher monthly payments during your peak months and lower payments during your off months if you run a seasonal business. You’re able to request custom business funding solutions.  

If you have the time, the credit history, the need for a substantial loan amount, and the ability to roll with the bank’s preferred terms, then a loan from a traditional bank might suit you just fine. 

But if you’re one of the many small business owners looking for quick business funding, flexible credit requirements, small loan amounts, or customizable loan terms, consider one of the many reputable B2B lenders for your business funding needs.

Net 30 credit cost of accounts receivable

Topics: Finance, B2B Sales, Funding, Loan

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