A Guide to Embedded Lending

Learn more about embedded lending, why it works, and what its emergence means for the future of financing.

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By 
Jon Fry
 | 
 | 
December 2, 2021

Embedded Lending 101

Embedded lending is the latest fintech trend that’s shaking up the industry. Learn more about how cutting-edge companies are increasingly turning to embedded lending to stay ahead of the pack.

Embedded lending has become the latest boon in fintech. Although articles describing the meaning of fintech — particularly what it is and why it matters — abound, embedded lending remains a relatively newer topic. Lending to SMBs has seen a wave of tech advances in the last decade that allow for better decision making and operational efficiencies, but none of these tech advances have had the impact that embedded lending can bring.

So how does embedded lending function? And how can it support SaaS companies serving SMBs and larger enterprises alike? Find out in this quick primer on embedded lending.

What is Embedded Lending?

Embedded lending occurs when lending is offered through non-financial services or products. It eliminates the need to rely on high-cost third parties, like a financial institution, within the lending process. Instead, with just a few clicks, customers can access the capital they need right from the SaaS companies they have come to know and trust. It’s no wonder, then, that the embedded finance market as a whole is expected to balloon to $7 trillion within the next decade.

One hallmark of embedded lending is that it allows SaaS companies to maintain control of their brand and the customer experience. Using a customizable API and white label solutions, a business can fully integrate embedded lending services into their platform in tailored ways that meet their specific customers’ needs. The entire lending process therefore becomes lighter and simpler, making it easier for a SaaS company’s customers to quickly access the vital capital they need to afford business-critical operations.

At its core, embedded lending allows SaaS businesses to offer a seamless experience that adds value to their customers — boosting customer engagement, retention, and LTV in the process. Companies adopting embedded lending know their customers better than anyone else, and thus are best positioned to serve their capital needs. By using the data that they already have on their customers — payroll, payments and spending data, for example — these forward-thinking businesses can increase their customers’ likelihood to obtain loan approval. That’s why effective embedded lending requires a lending partner who can not only build the lending infrastructure, but can also help companies analyze important customer financial data.

How Embedded Lending Became More than Buy-Now, Pay Later

If you’re familiar with the Buy-Now, Pay-Later (BNPL) model, you’ll have an easy time understanding the value of embedded lending. But despite unmistakable parallels between the two, it’s important to touch on the key differences.

Whereas the BNPL model primarily targets consumers in the retail space, embedded lending engages individual consumers and institutions alike. Since BNPL options generally target individuals making a purchase, the credit amounts are smaller, and less information and paperwork is required. Embedded lending, on the other hand, can be used within a variety of platforms where users are performing a variety of tasks that may or may not include a purchase.

Remember, for SaaS businesses, embedded lending serves as a way to give SMB customers the funds they need when they need them, all from within the same platform they turn to for payroll support, inventory management, etc. By embedding lending tools into their websites, SaaS companies are able to expand their suite of services and better serve their customers.

The Benefits of Embedded Lending

There are many benefits to embedded lending, both for SaaS businesses and their SMB customers. Benefits for SaaS companies include:

  • Controlling where, and how, the capital program is displayed within their product
  • Providing customers a contextual experience that increases product stickiness and customer engagement
  • Reducing customer churn thanks to the added non-core lending offering, which results in higher switching costs for customers
  • Reinforcing their SaaS platform’s brand through a more seamless and complete customer experience
  • Creating new revenue streams
  • Attracting new customers seeking quicker access to capital, or those seeking multiple services that can be more easily found within newly created one-stop-shops
  • Staying ahead of the competition by embracing this cutting edge trend early

Embedded Lending in Action

To understand the benefits of embedded lending for SMBs, consider the following example.

Imagine that a construction company is using a SaaS platform to manage their billing services. The construction company is at an inflection point in their growth trajectory and is looking to scale up to the next level. Before embedded lending came into the fold, an SMB like this might have applied for a loan to expand their operations, buy inventory, pay employees, etc. through a traditional financial institution. With embedded lending, this SMB can instead access capital without ever leaving the platform of the very SaaS company they trust to manage their billing services.

SMBs will increasingly turn to embedded lending as a go-to financing route because there’s a higher probability that they’ll be approved for the loan and, once approved, they can receive funds within 24 hours. There’s two reasons this process is so efficient: One, the SaaS company has access to the pertinent customer data that can be used to expedite the loan approval process, and two, the lenders available through the embedded lending platform specialize within the same industry and are better positioned to understand their customers’ capital needs. Remember that the opposite remains true here with traditional financial institutions, who most often operate under a one-size-fits-all lending and risk model, which creates a lengthy process for SMBs to access critical capital.

Embracing the Future of Finance with Embedded Lending

Embedding lending is just getting started, and yet, the sky's the limit. Companies that embrace this new trend will benefit from being on the cutting-edge of this new form of financing, allowing them to rise above the competition and propel their business for years to come. Because as long as customer desire for fast, seamless services continues to increase, embedded lending is here to stay.

The best way to meet this demand is to dive into embedded lending with a partner that empowers you to put capital into your customers’ hands where they are, and when they need it most. That partner is Lendflow, a platform that helps you create the perfectly tailored and flexible embedded lending infrastructure to meet your customers’ needs.

Are you ready to deliver seamless, contextual financial experiences that delight customers and increase engagement? Contact us today to get started!


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