As interest rates reach a 22-year peak and inflation remains persistently high, consumers and businesses alike are facing the brunt of unfavorable economic headwinds. But while technology companies have been rushing to provide consumers with more tools to navigate the high cost of living, small business owners have not been given the same amount of attention.
In response to the financial pressures inflicted by the pandemic, millions of consumers were offered alternative financing options to pay for goods and services online with buy now, pay later (BNPL) plans. This allows consumers to pay for goods and services online over a period of time instead of having a one-time charge on their credit cards. According to Juniper Research, it is estimated that by 2027, consumer spending using BNPL services will reach $437 billion globally—a 290% increase from 2022.
However, there are currently very few options for small businesses interested in leveraging the same schemes for their business expenses. Despite the fact that many small businesses do not have access to traditional loan sources and cannot afford high interest rates, many companies continue to focus on consumers instead of small businesses. It’s time to pay attention to the backbone of the U.S. economy—small businesses.
Delving Further into BNPL
BNPL services have been around for decades, with the first recorded instance dating back to the 1840s. Today, companies specializing in consumer BNPL services—such as Affirm, Klarna and Afterpay—grant consumers payment flexibility for a range of purchases without the stringent requirements of traditional lending providers like banking institutions.
However, alternative financing solutions built into the payment flow that allow businesses to pay their bills over longer periods of time while their vendors get paid in full and on time, have been slow to hit the market. In fact, pay-over-time solutions for businesses have only started materializing during the last year.
While small business owners are expected to invest in their businesses, they should not be forced to dip into their savings to finance inventory or struggle to secure loans. According to the Federal Reserve’s most recent survey, “two-thirds of firms (66%) used the owner’s personal savings or funding from friends or family in the past five years.”
What’s more, data from the Federal Reserve last year showed that only 31% of small business loan applicants received their desired funding—down from 51% in 2019. Additionally, small businesses owned by people of color and businesses with fewer employees were among the least likely to receive their requested loan amounts.
Personalized Solutions
While those small businesses could benefit from alternative financing solutions, there are few options on the market today that are tailor-made for them.
Many small businesses are subject to seasonal changes in demand or operate as freelancers with fluctuating income streams. Spreading out payments helps ensure that small businesses have enough cash on hand to weather months with lower revenue.
Additionally, it can take small businesses one to three months to receive funding from traditional sources including Small Business Association loans. Small businesses are craving more flexibility and easier solutions to quickly access financing when they need it most.
Conclusion
Today, it’s more critical than ever that financial institutions and technology companies come together to support small businesses through alternative financing solutions. Expanding pay-over-time financing capabilities to small businesses could be key to unlocking small businesses’ potential.
I challenge us all to start thinking more about the 33,185,550 small businesses across the United States that ultimately make up the foundation of our economy.
