There are a couple of ways to skin the online SMB lending cat: sure, you can provide straight-up loans to small businesses in need of capital. But, there’s a growing trend of what are called supply chain lenders — financing firms that provide cash to help grease the wheels of commerce.
Some of these lending models work as a three-way balancing act, providing cash as the connective tissue between buyers and sellers. By inserting themselves in the supply chain of both interested parties, everyone typically wins. Sellers have conflicting priorities. Of course, they want to get paid ASAP but they also understand that today’s buyers want, or require, flexibility in their payment terms. Supply chain lenders can help suppliers get paid quicker, provide beneficial payment terms to their customers, without taking on any credit risk.
“Cash flow patterns vary significantly among small and medium size businesses, so one-size-fits-all doesn’t work. For some businesses, reasonably priced supply chain financing can be the best solution,†said Ann Marie Mehlum, associate administrator for the SBA’s Office of Capital Access.
Supply chain financing makes acquisition easier, cheaper
In a way, supply chain lending is a better mousetrap. It’s really hard for a standalone lender to profitably bring in new borrowers. That’s why leaders in the space are partnering with incumbents, to help with acquisition costs. OnDeck did just that with its partnership with JP Morgan (JPM).
Supply chain finance firm Behalf has built an interesting distribution model. The firm works with suppliers to act as a financing option for their SMB customers. SMBs can take out a loan with Behalf to finance a purchase and Behalf pays the supplier immediately for its wares.
“Our value proposition is a win/win for customers and merchants – it helps customers optimize their cash flow, so they can buy more, which then increases merchant sales,†says Crystal Eastman, Behalf’s head of marketing, “so our product effectively sells itself.â€
