“I’m not a businessman, I’m a business, man.”
— Jay-Z, Diamonds From Sierra Leone (Remix)
You run a small business. Maybe it’s a pest control company, a retail shop, or a food truck. You’ve got customers, revenue, and a bright future—but like most small businesses, there are times when cash flow is tight. You need working capital, and you need it fast. Enter embedded lending, the newest way for small business owners to access funds without dealing with banks, brokers, or long applications.
We’re not talking about some shady loan provider. We’re talking about your payment processor, e-commerce platform, or even the software you use to run your business offering you financing right where you work. It’s easy, it’s fast, and it might be just what you need.
What is Embedded Lending?
Simply put, embedded lending is when a financial product, like a working capital loan, is built right into a platform or tool you already use. You don’t have to go searching for a lender because the platform is offering you money based on the business you’re already doing.
For example:
• Stripe Capital: If you process payments through Stripe, they may offer you a loan based on your payment volume.
• Shopify Capital: Running your e-commerce business on Shopify? They may offer you financing based on your sales and data they already have.
• Vertical SaaS: Let’s say you run a pest control business using a software platform to manage orders and employees. If that platform offers embedded lending, they might provide working capital based on the data they’re collecting on your business.
Why Embedded Lending Could Be Cheaper and Easier for You
You’ve probably considered working with a broker or a “pure” lender before, but here’s why embedded lending can actually save you money—and why it’s often easier to qualify for:
1. They Already Know You: The platform you’re using has already spent money to acquire you as a customer. They know your business, they know how much you’re processing, and that means offering you a loan is pure profit for them. Unlike traditional lenders, they don’t have to work to win your business—they already have it.
2. They Have Your Data: No long forms. No endless back-and-forth about your financials. Embedded lenders already know your revenue patterns, how many sales you’re making, and when you typically get paid. That means underwriting is faster, and they can base their offer on your actual business performance, not just your credit score.
3. They Want to Keep You Happy: Your loyalty is worth a lot to them. If they offer you a bad deal, they know you might take your business elsewhere, and that’s not worth it. So, you’re likely to get fairer terms than you’d get from a standalone lender who doesn’t care whether you stick around after the loan.
When Embedded Lending Makes Sense for Your Business
Embedded lending can be a powerful option for small businesses in a few key scenarios:
• You Need Fast Cash: If you’re experiencing a slow month or you have a big opportunity that requires some extra cash flow, embedded lenders can get you capital quickly. They’re not bogged down by the bureaucratic red tape of traditional lenders.
• You Want to Avoid Brokers and High Fees: Brokers often add hidden fees and inflate the cost of borrowing. With embedded lending, there’s no middleman, so you’re cutting out the extra layer of costs and dealing directly with the platform.
• You Need Flexible, Smaller Loans: Embedded lenders often offer smaller, more flexible loans tailored to your needs. You’re not stuck taking out a massive loan when you only need a little working capital to get through a rough patch.
Things to Keep in Mind
As convenient as embedded lending is, it’s still a loan, and you need to make sure it’s the right fit for your business. Here are some things to watch out for:
• Check the Fine Print: Embedded lenders might offer great rates, but always read the terms carefully. Understand the interest rates, repayment terms, and any fees before you take the loan.
• Embedded Loans May Not Account for All Revenue Streams: If you’re using Stripe for payments but also generate revenue through PayPal or B2B invoices, that additional income won’t be factored into the loan offer. Embedded loans are typically based on the data the platform already has, so you may qualify for a smaller loan than you would with a traditional lender who looks at your full financial picture.
• You Might Not Be Able to Apply Proactively: Unlike traditional loans, embedded financing usually works by pre-selecting borrowers. The platform sees that you meet certain criteria based on the data they already have, and then they offer you the loan. This means you can’t always apply for embedded lending whenever you want—it’s based on the data you generate through the platform.
• Don’t Take More Than You Need: Just because it’s easy to get funding doesn’t mean you should take more than you can handle. Always borrow based on what your business can realistically pay back, not based on what’s offered to you.
• It’s Not a Fix for Deeper Business Problems: If your margins are thin or you’re constantly in need of working capital, embedded lending isn’t a magic bullet. Make sure you’re using the loan to solve cash flow issues, not to cover up bigger problems.
The Bottom Line: Is Embedded Lending Right for You?
Embedded lending can be a great way for small business owners to access quick, affordable working capital. Whether you’re processing payments through Stripe, running an online store on Shopify, or using industry-specific software to manage your business, there’s a good chance you’re already a prime candidate for embedded lending.
But, like with any loan, you need to be smart about it. Check the terms, make sure you’re not overextending yourself, and always keep your long-term financial health in mind. In the end, embedded lending offers a faster, more tailored option to get the working capital you need—without the hassle of traditional lenders or brokers.