Galileo, Mastercard partner to extend installment financing options for small businesses

It’s been a rough few years for businesses at large, but small businesses (SMBs) have been more affected by inflation than others. After SMBs weathered the pandemic, their operations and profits took a beating at the hands of rising costs, equating to fewer sales and increased overhead. 

To equip SMBs with flexible financing options and increase their cash flow, Galileo Financial Technologies has partnered with Mastercard to enable lenders, banks, and fintechs to extend a buy now, pay later (BNPL) offering to their small business clients.  

“This is a small business-focused BNPL solution born out of significant demand from clients, prospects and the market in direct response to the friction SMBs face in obtaining fast access to flexible credit,” David Feuer, chief product officer at Galileo told Tearsheet.

SMBs can access installment loans through a digital virtual card for business purchases and investments. Banks and fintechs can oversee the repayment schedule, disbursement to the virtual cards running on the Mastercard Installments program, assessment of interest and fees, payment processing, charge-offs, and optional credit reporting. 

The offering can be customized according to the specific financial needs of SMBs, however, the extent of customization depends on the particular bank or fintech lender offering the solution, according to Feuer. Banks and fintechs are positioned to offer customized lending solutions due to their access to heaps of customer data. Having visibility into an SMB’s finances and existing account history provides a considerable advantage for banks and fintechs to offer installment loan options that support a small business’ financial health. This can also help with more accurate underwriting decisions, including how much credit to extend, the number of installments, and other loan details.

“Typically, the B2B BNPL terms look similar to consumer BNPL offerings such as Pay in 4 installments but I anticipate we’ll see some unique customizations in the near future as bank and fintech lenders continue innovating to meet SMB funding needs,” said Feuer.

“Some options I’ve seen include installment fees to accommodate a longer-term loan, but it's entirely up to the lender and depends on many determining factors. As we’ve seen a trend in banking towards ‘total relationship management’, I expect many financial institutions to offer these loans with and without fees depending on which of the bank's products the SMB customer may have adopted,” he added.

B2B BNPL for SMBs: A new avenue for growth?

As the layoff spree continues, more and more people are turning toward entrepreneurship, making the current environment a hotbed for new business formation. 5.1 million applications were filed to start a US business in 2022, following 5.4 million in 2021. 

However, the challenging part for SMBs lies in putting things in motion with whatever resources they have. Enveloped in macroeconomic pressures, they cannot afford to purchase excess inventory or pay in full upfront. Keeping up with rising costs (47%) is the top concern of new and existing small business owners as they adapt to the possibility of uncertain outcomes, and over 8 in 10 SMB owners seek faster and easier access to capital, according to a Mastercard report.

To fill this gap in the SMB lending market, some companies are introducing new B2B BNPL offerings aimed at small businesses or solutions to help them run their accounts payable. For example, the expense management platform Ramp introduced Ramp Flex to its product portfolio late last year. The service ensures that businesses can finance their bills flexibly and is somewhat like the business equivalent of consumer BNPL.

Galileo rolled out its new B2B BNPL solution in partnership with Mastercard nine months after it launched its consumer BNPL offering in December 2022. While both the BNPL offerings are two sides of the same coin, a business has a more calculated approach toward optimizing its working capital, which doesn’t generally include impulsive buying. Feuer explained that the two offerings are similar in a way that SMBs and consumers both need better access to credit through responsible lending opportunities. 

“SMBs need that same level of transparent and customizable financing choices and expect the same level of access to products they have as consumers – like BNPL,” said Feuer.

Most consumers who are business owners are already acquainted with BNPL, so there’s likely an affinity to take on that financing option without having to tap into their personal funds.

BNPL is growing in the B2C sector but still finding its footing in the evolving B2B space. Although a growing number of users including SMBs are inclined toward BNPL in lieu of credit card payments bearing interest, the fact remains that they cannot get credit card rewards points for purchases with BNPL. While consumers now expect BNPL providers to eventually introduce additional capabilities and features beyond what they currently offer, B2B BNPL providers may see a jump in a similar demand by businesses shortly, according to Feuer.

“As banks and fintechs offer BNPL and grow their relationships with SMBs, I’d expect to see innovative product benefits, which could include rewards funded by late repayment fees and high interest on balances carried for consumers and small businesses moving forward,” he added.