Just about every small business owner knows the value of having enough cash on hand to cover operational expenses and various emergencies. Banks aren’t exactly as helpful as they once were, however, so getting a bank loan or a line of credit can be excruciatingly difficult.
It doesn’t matter if your company is already profitable and established. The bank will still require a paperwork from you which will take many days to prepare. And the approval decision can drag on for many weeks and sometimes even months. And you may yet end up not getting the financing you need.
This is the current scenario which is fueling the rising popularity of business to business finance. Here are some facts you need to consider.
- The B2B lenders are very easy to find, as you can just go online. Some online companies lend the money themselves, while others have access to as many as 300 lenders which can offer you terms for the loan once you put in your applications. This is a significant improvement over going to banks and negotiating for loans in person.
- Each B2B lender has its own way of doing things. Some lenders offer cash advances against outstanding invoices. Others offer short term loans, and some are peer to peer lenders. Even payment processors such as PayPal are getting into the act by offering loans to some of its merchants.
- Here’s an example of how an online lender uses your invoices to give you the money you need. You sign up to the lender’s website, and you allow the lender access to your bank account and accounting software such as QuickBooks Online. You pick an unpaid invoice worth $5,000 and you get the line of credit right away.
Then over the course of 12 weeks, the lender collects its repayments in weekly installments that are automatically debited from your bank account. While the fee may depend on the riskiness of the loan, but in general it may range from $243 to $343 when a $5,000 invoice is involved.
This translates to an APR of 38 to 54 percent, but at least the pricing of the fees is transparent. There are no hidden “processing” fees to pay as well.
- Another example is to get the help of a consultant, which may not even charge you anything in fees when you apply for a loan. You simply indicate your particulars such as your name and employment and the amount you need. You’re then given a list of lenders with their loan offers. You pick the one you want, and then your loan is sent to your bank account. The money is then repaid through regular deductions from your bank account.
The popularity of this type of financing is increasing. One invoice based lender is now lending up to $200 million a year. Another short-term lender is now funding $3 million a day in loans. Because the loans are easy to get, it’s inevitable that this form of financing will become even more popular in the coming years.