Embedded Lending: How Third-Party Platforms Are Changing How Businesses Get Financing

• by Katie Crawford
• 2 Comments

Imagine you’re running an online store. You’ve got a surge in orders, but your inventory is running low. You need cash-fast. You don’t want to fill out a 10-page loan application. You don’t want to wait days for a bank to approve you. You just want to click a button inside your Shopify dashboard and get $10,000 in your bank account by tomorrow. That’s embedded lending-and it’s already happening to millions of small businesses today.

What Exactly Is Embedded Lending?

Embedded lending isn’t a new kind of loan. It’s a new way to deliver loans. Instead of going to a bank or a lending app, you get financing right inside the platform you’re already using-like Shopify, Square, Etsy, or even a SaaS tool like QuickBooks. The loan offer pops up when you need it most: during checkout, when you’re restocking inventory, or when you’re trying to upgrade your software plan.

It works through APIs. These are invisible connections between your platform and a lender-usually a fintech company or a bank partner. When you hit "Apply Now," the system pulls your sales data, customer behavior, payment history, and even how often you log in. In under 30 seconds, you get a decision. No paperwork. No calls. No waiting.

This isn’t science fiction. In 2024, 63% of the top 500 e-commerce platforms offered embedded lending. Shopify alone has given over $5 billion in merchant loans through its embedded system since 2018. And it’s not just for online stores. Dental clinics use it to finance new equipment. Fitness studios use it to buy new machines. Even farmers are getting loans through AgTech platforms that track their crop yields.

Why It’s Faster Than Traditional Loans

Traditional business loans take weeks. You gather tax returns, bank statements, credit scores, and then wait for a loan officer to review them. Even the fastest banks take 3-7 days.

Embedded lending cuts that down to minutes-or even seconds. How? Because it doesn’t rely on your credit score alone. It uses what’s called alternative data: your sales volume, return rates, customer reviews, how often you restock, how fast you ship orders. If you’ve been selling $20,000 a month on Etsy for six months, you’re likely to qualify for a loan-even if your personal credit score is only 620.

The approval rate for qualified applicants? Between 85% and 95%. That’s far higher than traditional lenders, who often reject 40-60% of small business applications. And funding? Instant for pre-approved users. 24-48 hours for others. That’s the difference between keeping your business alive and shutting down for a week.

Where You’ll See It Most

Embedded lending isn’t everywhere yet-but it’s growing fast in three main areas:

• E-commerce (58% of market): Shopify, Amazon, and eBay lead here. You’re browsing products, add to cart, and suddenly you see: "Get $5,000 to restock now-pay back over 6 months." No redirect. No new login. Just a checkbox.
• Point-of-sale systems (22%): Square and Toast offer BNPL (buy now, pay later) at checkout. A customer buys a $500 guitar, and they can split it into 4 payments. The store gets paid immediately. The customer gets flexibility. The platform earns a cut.
• B2B SaaS platforms (20%): Tools like QuickBooks, FreshBooks, and Xero now offer cash advances to freelancers and small businesses based on their invoicing history. If you’ve been sending $8,000 in invoices a month, you might get $10,000 upfront-repaid as a percentage of future payments.

How It Compares to Other Options

Let’s say you need $15,000. Here’s how your options stack up:

Comparison of Financing Options

Option	Approval Time	Approval Rate	Cost (APR)	Best For
Embedded Lending	Seconds to minutes	85-95%	12-36%	Businesses with strong platform data
Traditional Bank Loan	3-7 business days	30-50%	6-15%	Businesses with strong credit and documentation
Standalone BNPL (e.g., Klarna)	Minutes	80-90%	0-24% (if paid on time)	Consumer purchases only
Fintech Lender (e.g., Kiva, Fundbox)	1-3 days	60-75%	15-45%	Businesses needing more flexibility

Embedded lending wins on speed and accessibility. But it’s not always the cheapest. APRs can be higher than bank loans because lenders take on more risk with non-traditional data. But for many small businesses, speed matters more than cost. If you need cash now to meet payroll or avoid losing inventory, a 24% APR is worth it.

The Dark Side: Hidden Risks

It’s not all smooth sailing. Critics warn that embedded lending can feel too easy. Too frictionless. That’s the problem.

Some platforms nudge you to borrow more than you need. A Shopify merchant might see: "You’re eligible for $25,000. Only 23% of sellers use this much. Are you sure you don’t want more?" That’s a dark pattern-a design trick that pushes you toward debt.

There’s also a lack of transparency. Terms are buried in fine print. You might think you’re getting a 12% APR, but fees and repayment structures make the real cost closer to 28%. The Consumer Financial Protection Bureau warned in 2023 that embedded lenders are using "deceptive prompts" to increase borrowing.

And fraud? It’s rising. Embedded lending has a fraud rate of 1.2-1.8%, higher than traditional credit. Why? Because lenders rely on digital signals, not documents. A bad actor can create a fake store, run a few sales, and get approved before anyone notices.

Small business owners on LinkedIn reported that 31% of them ended up paying higher effective rates than they expected. One seller in Ohio took a $12,000 loan to expand her candle business. She didn’t realize her repayments were taken daily from her sales. Within three months, she was paying $180 a day-leaving her with barely enough to cover inventory. She ended up defaulting.

Who Benefits the Most?

The winners? Businesses that understand their data.

Bella & Duke, a Shopify store selling handmade baby clothes, saw a 37% jump in average order value after adding embedded lending. Why? Because customers who saw the "Pay over 4 months" option at checkout spent 22% more. The store didn’t lose money-it made more per sale, and the lender took a cut.

Freelancers using QuickBooks’ embedded cash advance feature report they get funded in 15 minutes, not 15 days. That’s life-changing when you’re waiting to pay rent or buy a new laptop.

SaaS platforms benefit too. When they offer embedded lending, customer retention goes up. A business that gets a loan through your platform is more likely to stick around. And you earn a percentage of every repayment. That’s recurring revenue-without building a bank.

How to Get Started (If You’re a Business Owner)

If you’re using Shopify, Square, or QuickBooks, check your dashboard. Look for tabs like "Financing," "Capital," or "Grow Your Business." You might already be eligible.

Here’s how to use it wisely:

1. Only borrow what you need to grow-not to cover losses.
2. Read the repayment terms. Is it daily? Weekly? Fixed? Some deduct directly from sales, which can hurt cash flow.
3. Compare the total cost, not just the APR. Look at the total repayment amount.
4. Don’t take multiple loans at once. It’s easy to pile up debt when it’s this simple.
5. Track your sales after borrowing. Did the loan help you make more? Or just spend more?

If you’re not on a platform that offers it yet, ask. Demand matters. Platforms respond to customer requests.

What’s Next?

By 2026, 45% of embedded lending will be vertical-specific-tailored to healthcare, education, or auto repair. Imagine getting a loan to buy a new MRI machine right inside your medical practice software. Or financing a new HVAC system through your home services app.

Regulators are catching up. The CFPB plans to release formal rules on embedded credit disclosures in late 2025. Expect clearer terms, mandatory cooling-off periods, and limits on aggressive nudges.

Banks aren’t fighting this-they’re joining it. 72 of the top 100 U.S. banks now partner with fintechs to offer embedded lending. They provide the money. The platform provides the customers.

The future of lending isn’t in branches. It’s in the apps you already use. And if you’re a small business owner, it’s already here.