B2B Payments

SMBs Explore Financing Options For Their Digital Transformations

Access to capital for small- to medium-sized businesses (SMBs) has always been vital, as well as a challenge. Borrowers don't always have a consistent experience in their hunt for financing, either.

In some cases, when a traditional bank shuts the door on an SMB applicant, a business owner may not know where else to turn for capital. In other scenarios, an SMB may be overwhelmed with a plethora of loan products, each designed for different purposes with unique requirements and costs.

In today's market, growing availability of government aid has helped many SMBs, yet also lifted the curtain for many entrepreneurs about just how confusing, opaque and limiting certain financing arrangements can be.

For SMB owners facing a cash flow crunch that coincides with the need to invest in modern equipment and technology as part of their digital transformations, equipment financing may be an appropriate option. Mike Jones, president of Business Capital at CIT Group, recently told PYMNTS about the opportunity to combine the equipment financing model with another financing tool typically reserved for consumers and how this strategy can ease SMBs into their much-needed modernization efforts without breaking the bank.

Financing Modernization

With SMBs facing greater pressure to modernize, investment in technology — everything from cutting-edge machinery to new laptops — is a must. But the price tag is rarely painless.

"When it comes to investing in technology, there are many reasons why a business may want to finance technology rather than pay in-full at the time of purchase," Jones said.

He pointed to the need for SMBs to remain competitive and provide consumers a best-in-class end-user experience that can often only be achieved with modern technology. Rather than procure an item outright, there are advantages to obtaining equipment financing to secure the technologies SMBs need. In some cases, tax advantages may be available. Financing also enables small firms to obtain equipment without making a dent in the lifeline of a bank line of credit.

According to Jones, there is another advantage of equipment financing through merging the model with another financing solution: point-of-sale (POS) financing.

CIT's own POS equipment financing offering enables SMBs to finance their purchases of $2,500 or more — merging the convenience of consumer-facing POS financing with the high-value transactions typically associated with SMB purchases. By streamlining the product search, credit approval, terms management, and electric documentation process, POS equipment financing eases the friction of making a big purchase while maintaining healthy cash flow.

On the vendor side, meanwhile, Jones noted that there are similar benefits to the POS financing models seen in the B2C commerce space. In addition to promoting flexibility for shoppers, the technology can integrate directly into back-office platforms like their B2B eCommerce portals and other sales channels.

When cash flow is tight, enabling an SMB to pay over time for high-value equipment can be the difference between a sale and a lost customer.

Balancing Cash Flow With Tech Investments

The global pandemic has created a unique predicament for many SMBs. Closed shops and depressed customer demand mean cash flow is tight for Main Street, and large-scale investments are, for many, entirely off the table.

At the same time, however, in order to keep business moving, many SMBs have been forced to suddenly migrate online, digitize and support an employee base that's working from home. This fast-tracked digital transformation means heavy investments in expensive technologies, like laptops for remote workers or new equipment that can support a shift in business model.

"While it's not a new concept, the current business climate highlights just how important it can be to have technology-enabled capabilities," Jones said. "Businesses that can serve customers online and around the clock are often better positioned than those that rely exclusively on walk-in customers or non-digital methods."

Being able to finance those technologies means preserving vital cash flow, with fixed monthly repayments often far more manageable than purchasing an item at once, he noted, adding that opportunities to introduce buy-out provisions within an equipment financing arrangement can also open up favorable avenues to ownership.

In tumultuous times, investments often fall by the wayside. But for SMBs that have no choice but to digitize to continue operating — and to invest in the technologies that will enable that modernization push — establishing a financial strategy to adopt new technologies will be essential to survival.

"Now, more than ever, cash reserves are important," said Jones. "Financing preserves working capital to be used for other needs that cannot be financed ... In many cases, the value of conserving and having ready access to cash can be much more significant than whatever finance charge is associated with borrowing."



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.