Why Silicon Valley Bank is betting on buy now/pay later for businesses

SVB Financial, the parent company of Silicon Valley Bank, has led a $125 million credit facility to a technology company that provides short-term financing to small businesses — a lending option that is gaining in popularity amid the lingering impacts of the pandemic, inflation, supply chain problems and liquidity.  

SVB is providing the credit to Slope, a year-old startup that will use the funds to expand its credit product, which resembles a form of buy now/pay later lending, but only for businesses. Trinity Capital also participated in the new round, which followed a $24 million Series A round from Monashees and Union Square Ventures in April. 

"Their focus now is carving out a niche in financing," said Nick Christian, head of the specialty finance group at SVB.  "It can be tough for these businesses to get credit or financing from a bank or credit union." 

Global fintech funding fell 33% between the first and second quarter 2022, hitting $20.4 billion, according to CB Insights, though the overall level of fintech funding remains near 2019 and 2020 levels. Despite the correction, funding to BNPL companies passed $4 billion in the first two quarters of 2022, ahead of 2021's full-year pace. And while CB Insights didn't break down BNPL investments by business model, it did note that B2B lenders are starting to attract attention.

"There's a lot happening with BNPL on the consumer side, but not as much on the business side," Christian said.

Slope embeds business BNPL into its checkout experience, similar to a consumer BNPL application. A business that's selling a $1,200 shipment of umbrellas, for example, has the option to let the buyer make payments over three installments up to 60 days with no fees beyond Slope's merchant fee. Slope's API underwrites the loan and it pays the seller upon delivery. It then collects from the buyer.

"Shipments and supplies can be unpredictable, and businesses need to have time to pay or to sell products without worrying about the supply chain," said Alice Deng, who co-founded Slope along with Lawrence Lin Murata. "This gives companies an extra buffer when there is turbulence in shopping." 

Slope is expanding amid signs that small and medium-size businesses are struggling with finances over a long period of time that predates the pandemic. 

Sixty-six percent of small businesses were unable to secure enough funding to cover their needs at least once during the past five years, according to the cloud banking platform Mambu, which surveyed more than 1,000 businesses that applied for a small-business loan during that time.  Mambu also found 43% of small businesses have turned to family and friends for funding, compared to banks and credit unions at 34%, and personal funds at 30%. 

"We saw how tough it was to digitize businesses during the pandemic, and there have been more problems that have stacked on since," said Lin Murata. 

The product-shipping problems that followed the pandemic's early stage provided a supply chain financing boost as suppliers sought funds to manage shortages in goods. Companies such as Bank of the West, Swift and SAP added real-time processing, short-term loans and virtual cards to ease financial strain. 

Payments

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Payment companies such as Block (formerly Square) and PayPal, and small-business lender Kabbage (now part of American Express), have long offered short-term loans or merchant cash advances, to help businesses cover shortfalls in liquidity. These loans are usually paid back via future payment flows, and the merchant's payment history is used to approve the loans and set terms. 

More recently, firms have started offering consumer-style installment lending to small businesses as the broader BNPL market diversifies. Business financing provider Flexbase recently launched BNPL for B2B merchants. Called Flexbase Pay, the product provides 100% of the revenue for business purchases at the point of sale, while buyers get a 60-day window before making payments. 

Billie, a Berlin-based lender that counts Klarna among its investors, also offers BNPL as an option for business clients. And Resolve, an Affirm spinoff, enables merchants to finance business costs s via fast credit checks. 

BNPL has caused concerns about debt accrual, but SVB's Christian argues it is an option with set terms that aren't directly reliant on future consumer payments at a business. 

"It's more of an installment product, the repayment is defined," Christian said. "With merchant cash advances you're betting on future swipes or card usage."

SVB's credit extension builds on an existing relationship with Slope and fits well with SVB's specialization in startups, according to Steve Murphy, a director at Mercator Advisory Group. 

"And generally payments-related investments are at about the same level as 2020," Murphy said. "B2B continues to attract investment, particularly in the area of financial operations such as procure to pay, payables, receivables and anything to do with working capital."