The Journey From Referral to Embedded Lending

While referral financing was once the only option for SaaS companies looking to connect their customers to capital, it’s no longer the only game in town. In providing a better pathway for SMBs to access capital, we detail how embedded lending is shaking up the industry.

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Jon Fry
February 4, 2022

Referral financing companies have been around for a while, gaining a reputation for helping SaaS companies connect their SMB customers to capital. As long as referral financing remained the only real option out there, these referral companies became the easiest way to deliver financing options by default.

Until embedded lending came along. This new form of financing, led by companies like Lendflow, has created a better, more efficient and effective way for SaaS companies to help their customers get the capital they need. Because embedded lending is still a new and often-misunderstood concept, people tend to think it is the same as referral financing. In reality, the two are very different. They offer vastly different benefits and experiences to SaaS companies and SMBs alike, with it becoming clearer and clearer that embedded lending has emerged as the superior solution between the two. To understand why that is — and how the referral route pales in comparison to embedded lending — it’s important to first understand exactly how both referral financing and embedded lending work, and where they differ.

What is Referral Financing?

Referral financing, which is offered by companies like Bluevine and Lendio, is a way for SaaS companies to connect their customers to capital through a referral company that runs its own lending marketplace. While referral financing may seem similar to embedded lending on the surface, there are some significant differences between the two.

Referral financing connects SMB customers to capital through partnerships with SaaS companies. Customers can access links to the referred financing partner through the SaaS tool they’re using. When they click on the link, they are taken to a third-party page — the referral financing company’s site — where they insert all of their information and apply for capital. The process is entirely independent of the familiar SaaS tool they were using. The financing option is connected only through the existence of the external link within the SaaS company’s product. When customers do get capital through referral financing, the SaaS company will receive a portion of the revenue proceeds as well.

The problem with referral financing is that the marketplace is promoted via SEO, emails, or other referral websites. The result is an impersonal, cookie-cutter experience for SMBs and a high volume of low-quality leads for lenders. That means more paperwork and higher operational costs for lenders — and a reduced chance of SMB customers receiving a good deal on capital.

What is Embedded Lending?

Embedded lending, which is offered by companies like Lendflow, is integrated directly into the SaaS platform. It connects customers to capital at their point of need, letting them apply for financing without ever leaving the recognizable SaaS software they’re using. That makes for a streamlined and simpler experience than what is achieved through referral programs. It also increases the chances that an SMB will receive the capital it needs at a good rate because — unlike with referral financing — the lender can readily access and utilize the data that the SaaS company already has collected on a customer when assessing their application. Better data analysis leads to better deals.

Embedded lending comes with a wide range of benefits for SaaS companies and SMB customers alike. It lets SaaS companies increase customer LTV, boost engagement, reduce churn, create new revenue streams, and more. At the same time, embedded lending creates a smoother process that lets SMBs stay within the software they know and trust, making it easier for SMBs to access the capital they need when they need it.

Why do Referral Campaigns Fail?

When comparing referral campaigns to embedded lending, there are a number of areas where referrals fall short. These failures are particularly evident when it comes to:

Customer Experience

With referral financing, SMB customers looking to obtain capital are immediately taken to another webpage outside of the software they know and trust. They are then handed off to an unknown third-party company and a representative who has little familiarity or context about the customer and their business. This increases friction and lowers trust, leading to a poor customer experience with lower conversions.

Embedded lending eliminates those frustrations — offering a cohesive experience where customers don’t have to leave the ecosystem of the software they already know and love when applying for capital. The customer experience for embedded lending is white-labeled, with expert funding advisors that work with specialized lenders in each industry. Since SaaS companies can white-label their embedded lending experience, they increase the trust in their brand. Customer metrics for SaaS companies improve across NPS, engagement, and more as they provide a better, more consistent, and authentic experience for their SMBs.


At best, referral campaigns are co-branded. That means customers know right away that a different company — not the one they’re already using — will be processing their application and will be responsible for their approval. That understandably reduces comfort and trust.

Unlike referrals, embedded experiences are white labeled. That means SaaS companies have full control of their brand throughout the process, which increases trust, brand equity, and improves the overall experience for the SMB customer. The only company the SMB ever sees is the SaaS company they know and trust.


In referral campaigns, links are typically placed in areas of low context. A low context environment means the capital application is not relevantly located in an area with respect to what the customer is doing in the software. That means customers aren’t seeing access to capital at opportune times of need when they are most likely to apply for capital. Instead, SaaS companies rely on a strategy based on hope — hope that their customers will remember the service is available from their generic marketing emails and will click on hard-to-find links.

That’s a very different situation from what you get with embedded experiences, which are contextual and placed front and center in the software the SMBs are using to run their businesses. By putting capital at a customer’s direct point of need, embedded lending increases intent and offers a far more seamless experience.


Since referral campaigns aren’t contextual, it’s important that they’re marketed well. Unfortunately, that’s a rare occurrence. Campaigns typically start out with a big, generic email blast to the brand partner’s SMB customers, broadly informing them of the partnership and letting them know they can now apply for capital. While this might drive a temporary spike in traffic, the demand usually decreases over time since it takes consistent, long term marketing campaigns to drive consistent traffic to the external landing page. It’s no wonder that the generic copy that defines referral campaign marketing — which is driven by the referral company and fails to highlight specific industry needs, use cases, or product touch points — is unlikely to do that.

Those problems are eliminated for SaaS companies that embed financial products. For one, these companies can maintain full control of their marketing activities, or, if they choose to outsource it to a company like Lendflow, they can still control their branding throughout the entire customer experience. When SaaS companies can treat their embedded capital programs as their own product, they can create a seamless communication and marketing experience for their SMB customers from the launch.

Leveraging Data

In a referral lending setup, data that SaaS companies already have on the customer isn’t used to help them get capital. The result is that SMB customers don’t get access to a simplified application process, nor is any existing data used to help them get better rates or terms than they could receive elsewhere. The process operates a cookie-cutter, one-size-fits-all model.

Embedded lending, on the other hand, empowers SaaS companies to leverage their own data to improve their SMB customers’ profiles when applying for a loan — leading to better rates and tailored terms not found anywhere else in the market.

Empowering SMB Customers with Capital Through Embedded Lending

While referral financing and embedded lending may seem similar on the outside, their differences remain substantial — and not to be overlooked. Referral campaigns offer a worse experience for both SaaS companies and their SMB customers. Embedded finance, meanwhile, has emerged as a particularly attractive option for businesses. Weighing referral campaigns’ relative lack of benefits against the backdrop of embedded lending drives this conclusion home.

If you’re interested in making it easier for your customers to connect to the capital they need to help their businesses thrive, embedded lending is the premier solution to consider. To make the most of your embedded lending program, you’ll need a partner that can support you throughout the process. At Lendflow, we’re ready to be that partner.

Contact us today to learn more about how our unique embedded lending platform can help you better support your SMB customers!

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