“Buy now, pay later” lenders are discovering a new market: small businesses

Record high inflation, rising interest rates and low confidence continue to make things difficult for companies. This is especially true for small, new businesses, which often need to invest a significant amount of upfront capital to purchase equipment, build inventory, or advertise.

A possible solution to this problem are business-to-business (B2B) payment models “buy now, pay later” (BNPL). In recent years, BNPL has become increasingly popular with consumers, allowing them to spread the cost of shopping across a series of equal payments. If companies can do the same, some say, they can reduce risk and ultimately be more resilient.

  • Small, new businesses often need to invest a significant amount of cash up front to get their ventures off the ground, but it can be risky.
  • In response, payment providers are expanding the BNPL model to the B2B space. These companies include Plastiq, Mondu and Billie, all of which now offer BNPL solutions to both B2C and B2B customers.
  • For small businesses, the availability of B2B BNPL presents both risks and benefits.

B2B payments are becoming more flexible

Many companies are currently faced with unpredictable market conditions. Consumer demand held steady in November, but many are nervous that rising interest rates and inflation could dampen this as the new year begins.

This risk means that responsible small businesses – and especially new firms – have difficulty justifying significant upfront investments. Yet many need to make precisely these types of capital investments to prepare for initial business needs.

The situation is made even more difficult by the financial landscape. Right now, even the best short-term business loans are charging higher interest rates than they were a year ago as they react to the Fed’s repeated rate hikes.

To meet these challenges, creative businesses and lenders are looking to capitalize on payment models that have proven successful in the consumer marketplace. In particular, over the past few years, we have seen the Buy Now, Pay Later (BNPL) model gaining in popularity among consumers.

Payment providers see this as an opportunity and are expanding the BNPL model into the B2B area. These fintech lenders include Plastiq, Mondu and Billie, which are now pioneering BNPL solutions for B2B customers, although they also offer traditional pay-in-four lending to consumers.

The benefits of entering the B2B space for payment providers are obvious. Not only is the average B2B payment larger than the average B2C transaction, but Statista estimated in 2018 that the global business payments market is worth $125 trillion, more than double the global consumer market.

risks and rewards

For small businesses, the availability of B2B BNPL presents both risks and benefits.

There are several benefits of the BNPL model for businesses, and small businesses in particular. BNPL allows these companies to spread significant and infrequent investments – such as new inventory or advertising – over time.

This can help create “airstrips,” as Ronak Shah, CEO and co-founder of Obvi, recently told industry analysis firm PYMNTS. It is possible to use BNPL to make capital flows smoother, improve small businesses’ ability to respond to short-term market fluctuations, and ultimately improve resilience.

However, there are also some concerns about the continued rise of BNPL solutions. The Consumer Financial Protection Bureau has warned consumers that using this option regularly could increase their risk of getting into unsustainable debt. That’s because it’s tempting for consumers to think they don’t need to make repayments immediately, and then lose track of multiple payment commitments that they’ve agreed to.

For companies, the risks of BNPL are different. Well-managed companies will carefully monitor their future debt obligations, so the risk of accidentally missing a repayment is likely to be slightly lower as long as there is capital available to meet them. However, simply tracking planned future payments can become a time-consuming task, especially if a company uses BNPL frequently.

Second, some analysts have pointed out that corporate financing has traditionally relied on a lender with in-depth knowledge of a borrower’s business model and financial health. Offering standard BNPL solutions to businesses – essentially lines of credit easily accessible – can undermine this and make these types of loans more risky for both lenders and borrowers.

Another potential complication is the highly complex and volatile regulatory environment faced by B2B BNPL providers. Each country has its own tax and reporting requirements for BNPL loans, making cross-border financing a potential minefield. The regulatory landscape is also changing rapidly within the US: New York and California have enacted laws mandating more disclosures on advances for consumer-facing BNPL financing, and these can also add complexity to B2B BNPL solutions.

These risks are certainly real, but can be mitigated by lenders and borrowers carefully evaluating their BNPL obligations. The BNPL financing model offers companies many opportunities, but also poses new challenges.


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