What are the benefits of BNPL platforms for businesses?
“The smaller the business, the higher the risk from a lot of banks’ perspectives,” says Corinne Pohlmann, senior vice-president, national affairs and partnerships for the Canadian Federation of Independent Business (CFIB).
“It also depends on, are you at the beginning of your business stage or your startup? … And what is the reason for the capital needs?”
It can be difficult for a young business to get approved for a bank loan, but there are other options when it comes to funding and dealing with expenses. BNPL can essentially work as a loan, but young business owners are more likely to be approved for it.
BNPL has already gained popularity in the consumer space, especially among younger shoppers — and it’s now making its foray into the business-to- business world in Canada.
“What you need is a way to automatically come up with a credit decision, right at checkout with no delay, and that's not easy, especially in business transactions,” says David Gens, president and CEO of Merchant Growth and Tabit.
Tabit — which launched in February this year — functions as a third-party platform to allow businesses to pay their suppliers in weekly instalments. It’s a first for Canada, although BNPL services for the business to business space are available in other countries, like Resolve, Billie, Apruve and Slope.
“We're providing more credit to more businesses to make more purchases, but we're also streamlining things for that supplier,” says Gens.
Banks typically secure loans against assets like real estate or inventory, with these assets acting as collateral. In contrast, BNPL platforms may use algorithms, credit checks or other scoring mechanisms in order to approve a business.
With this system, Tabit approves more small businesses for unsecured loans, where no collateral is necessary. Unlike bank loans or credit cards, Tabit also doesn’t currently report to the credit bureaus, which means that if you don’t make your payments on time, it won’t affect your business credit score.
The length of the payment time may vary. For Tabit, it ranges from one to 12 months, while Resolve offers 30-, 60- or 90-day terms.
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How does BNPL work for small businesses?
Taran says Blume doesn’t use a third-party platform, but directly negotiates with its suppliers to pay in instalments.
“You want to make sure that you can afford the payments when the time comes, and that you're really managing your cash flow adequately, but I think it can be really meaningful for small brands to be able to use that money for marketing and growth until you get paid.”
However, it often takes time for businesses to build a good relationship and earn credit with suppliers.
While BNPL platforms take on the responsibility of approving small business buyers and paying their suppliers, be mindful that there may be extra fees or penalties involved.
Resolve and Billie, for example, don’t charge fixed fees or interest rates to buyers. Instead, the suppliers are charged fees. If payments are not made on time, Resolve or Billie may be able to offer extended payment terms. However, in a worst-case scenario the companies may utilize collection agencies to secure repayment.
Tabit features 0% interest for up to 90 days. Merchants pay a fixed fee to offer the 0% option to buyers, but in other cases, the buyer will need to pay a fee based on things like their risk profile, sales or industry.
Gens explains that Tabit will work with buyers if they’re struggling to meet their payment terms, but may need to use legal means if the buyers are unresponsive or refuse to cooperate.
BNPL for businesses could be potentially beneficial for cash flow and creating competition, says Pohlmann, but adds that there may be downsides as well.
“Having a few more options that can maybe help [owners] deal with expenses that they need to actually incur in order to get their business back on its feet, there may be some potential here. But there also can be some drawbacks if you end up paying more overall [on interest or fees].”
What other options do small businesses have when it comes to financing?
Pohlmann says some business owners may turn to family members or friends for financial help, use credit cards or dip into their personal savings.
“In the early days, we definitely used our own credit card debt and student loans, and bootstrapped them,” says Taran.
Taran adds that she and her sister acquired their first loan from Futurpreneur — a Canadian non-profit that supports young entrepreneurs — and later raised funding from angel investors and venture capitalists.
However, relying on credit cards and personal savings accounts can fuel debt. The CFIB reported in March that two-thirds of businesses have taken on debt, at an average of $158,000 per business.
Taran suggests looking into grants, although Pohlmann says these aren’t always accessible to everyone.
“There aren't a lot of them … they're often very specific and targeted, and can come with a lot of paperwork.”
Pohlmann advises small business owners to explore different options.
“Don't just go to the traditional banking route, see what works best for your business. Figure out the amounts that you need … and how much you can afford as a business to take on … You may have family or friends that are also willing to help you out.”
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