Alternative lending platforms integrating with providers of other financial services has become a new norm. Just look at SAP Ariba, which integrated PrimeRevenue’s supply chain financing into its spend management platform, or Reckon, a small business accounting platform that recently rolled out an SME lending feature thanks to Prospa.
The list is long, but cloud accounting solutions are some of the most common targets for an alternative lending integration. Less common, however, is an SME financing solution that integrates into a commercial card offering.
In 2009, the National Small Business Association found that 59 percent of SMEs used commercial cards to meet their working capital needs. More recently, the U.S. Census Bureau’s Survey of Entrepreneurs, first published this year, found that entrepreneurs are increasingly looking at cards and turning away from traditional bank loans to fund their businesses.
The trend puts commercial cards and lenders in competition with each other. But, as PEX revealed to PYMNTS, the two solutions aren’t always at odds. The prepaid commercial card and expense management company announced an integration with eCapital to offer its SME clients the option to take out a loan straight from the PEX platform. CEO Toffer Grant and Chief Growth Officer Ned Elton described the current state SME cash flow management as one that benefits from choice.
“People who are turning to credit cards [to finance their small businesses] are doing so because it’s a very convenient way of borrowing money,” Grant said. “But the prevailing data suggests that most businesses don’t revolve on their credit cards for very long — it’s a couple of months.”
Still, noted Elton, credit cards mean high interest rates for SMEs and a short amount of time between when purchases are made on the card and when fees and interest rates start to accumulate.
“It’s a very expensive form of financing,” Grant added.
But not all commercial cards are created equal. PEX offers a prepaid card with its expense management solution, meaning businesses need to already have the cash on hand to finance whatever their employees spend on their corporate cards. And that’s where a lending solution like eCapital’s comes in.
“There is a big gap in transparency,” stated Elton. “We hear from a lot of potential customers about situations where it gets to the end of the month, and all of a sudden, an employee drops a $35,000 expense report that’s three months’ worth of expenses that they’ve accumulated and only now they’re submitting it.”
The challenge for many SMEs, the executives noted, is being able to predict what employee spend will be from month to month. Transparency in how workers spend corporate money as they’re spending it is key. But being able to finance that employee spend with something other than a credit card is also vital to the financial health of a company.
“We’ve seen companies that get nailed from a cash flow perspective,” Grant said. “Maybe clients haven’t paid that invoice, but they’re obligated to the employee to reimburse quickly.”
Intelligently taking out a small business working capital loan means understanding what your expenses are in the first place. Transparency between a prepaid card and employee expense management solution, and a small business lending option, make the two a complimentary service.
“Financial institutions like banks handle lending and also provide these types of card-based services; here, you have two independent companies that are in the financial services space as non-FIs who are looking to join forces to create that cohesive product offering,” Grant said of the eCapital partnership.
He added that PEX is continuing to look at more partnerships ahead to integrate added services into its platform. While these players may provide different — and seemingly competing — financial services, they all have the same goal in mind to aid SMEs in their cash flow management challenges. Grant said that expense management is just one component of that, and often, SMEs aren’t thinking their employee expense policies through.
Whether it’s last-minute reimbursements a small business needs to make or a lack of clarity in when employees should file their reports, a lack in expense management, Grant said, can “eat into cash flow in a major way.” A robust cash management solution, in PEX’s case, means collaboration to tackle all sides of the money crunch.