Is Embedded Finance Suitable For Small Businesses?

Small businesses are the backbone of our economy, yet most face significant challenges in accessing the funds they need for growth. The right financing solutions should be there to bridge this gap and connect small business owners, just like you, with the funds they need to thrive.

Over the past few years, Fintech (financial technology) has allowed more business owners to access funds. Technology has moved away from traditional bank loans and encouraged a new wave of alternative finance options that are better suited to the needs of small businesses. 

Embedded finance, the process of integrating financial services into non-financial offerings, is a big part of this growth in accessibility and something that small businesses should understand. 

According to research, the global embedded finance market was valued at around $82.32 billion in 2023 and is expected to grow. It’s meant that small businesses can access financial services with fewer barriers. This way, they can focus on expanding their product range, starting new locations, employing more staff and serving their customers better.  

In this article, we’ll provide insight into what embedded finance is, the benefits to small businesses and how these deals are typically structured. 

Understanding the Benefits of External Finance 

Small businesses need finance for many reasons: to grow their business, pay for stock, or invest in machinery to improve their operations.

If you want funding for your small business, you’re not alone; in the past 5 years, 59% of small businesses in the UK have applied for finance.

The potential benefits of receiving finance for your business include: 

• Gaining access to funds for growth and operational needs
• Aiding investment in equipment, technology, marketing and expansion
• Helping you manage your cash flow more effectively
• Providing a competitive advantage to help you compete more effectively
• Providing an opportunity for you to expand or seek alternative revenue streams for more sustainable profits

Types of Financing Solutions

You’ll quickly realise that there are many different options.

Different funding sources are designed for different situations; not all will be relevant to your business. Some finance options offer up-front cash, perfect for investing in a new piece of machinery, and others can be paid back in small increments, which usually works best for service-led businesses like cafes and restaurants that need help managing their overheads.

Below, you’ll find a framework that breaks down the different options so you can find the most appropriate for your business.

Instalment Loans

These loans provide a lump sum upfront, which can be repaid over a fixed term with scheduled payments (including principal and interest).  

These work well for smaller businesses as they offer predictable repayment schedules, making budgeting easier.If you’re starting to explore the world of financing as a small business owner, 

Revolving Credit

This provides access to a credit line that can be drawn from as needed, then repaid and borrowed again.

Revolving credit can manage fluctuating cash flow and cover unexpected expenses for seasonal businesses. 

Point-of-Sale (POS) Financing

This option allows businesses to finance their purchases at the point of sale, which can be useful for small businesses needing higher-value items.

Personal Loans

While not strictly business loans, personal loans can be used by small business owners to fund the growth of their businesses, especially in the early stages. However, they are tied to the owner’s credit and may carry higher interest rates.

Lease-to-Own

This option allows businesses to lease equipment or other assets with the option to purchase them at the end of the lease.

It saves business owners from making outright purchases, helping manage their cash flow.

Business Loans

This is a very broad category but covers various loans that are designed specifically for businesses.

For example, Merchant Cash Advances (MCAs).

Peer-to-Peer (P2P) Lending

Various P2P platforms connect borrowers directly with individual investors as an alternative funding source for businesses that don’t qualify for traditional bank loans.

In-House Financing

In some cases, businesses may offer financing directly to their customers. This can be a powerful tool for increasing sales and building customer loyalty.

Financial Offerings

Whether you work with a broker or not, you will be offered a deal that should be structured based on your specific needs. You can work with your broker or finance provider to create the best deal for your situation, but make sure to think about the following elements:

1. Financial assistance: Many small businesses work with a broker to structure their funding. They will be able to understand your financial health, assess your funding needs and choose the most appropriate solution. 
2. Flexible payment options: One size rarely fits all in small businesses, especially seasonal ones. To accommodate fluctuating cash flow, you should explore a range of repayment schedules, including monthly, quarterly, or even seasonal payments.  
3. Affordable financing solutions: As a small business owner, you’re probably after the most competitive interest rates with minimal fees. It’s essential to consider the full cost of borrowing to help you make an informed decision. 
4. Credit financing choices: Looking at various credit-based solutions, like term loans, lines of credit, and equipment financing, can help you find a good balance between your funding needs and attitude toward risk.  
5. Quick approval for loans: If you need cash quickly, choose options that streamline the application process and can guarantee funds without delays. 
6. Interest rates and terms: Every penny counts for small businesses, so be aware of all interest rates, fees, and repayment terms to understand the total cost of borrowing.
7. Secure online applications: If you’re using an online application portal, make sure you’re using an encrypted service that protects sensitive information.
8. No credit check financing: While not always feasible, this could be an option if you have less-than-perfect credit.
9. Low down payment plans: For equipment financing or other large purchases, look into low or no down payment options.
10. Credit score requirements: Different financing options will have different credit score requirements, so understand your creditworthiness and how this could impact your access to particular finance options. 
11. Loan application process: The loan application process can be complex, so if you’re working with a broker, make sure to ask as many questions as you can about the process. They are there to assist you throughout the journey. 

Conclusion: Embrace Financial Solutions 

It has taken a lot of time and effort to get your business where it is today, and finance could be the key to unlocking a new, sustainable level of growth. 

Understanding what embedded finance is and working with a broker who uses it can help you access the best financial solutions on terms that align with your business goals.

Embedded finance can help connect you with the right capital at the right time to fuel your growth and enable you to create jobs, innovate and contribute to the broader economy.

In this guide, we’ve taken you through the various finance options that are available to you and how to work with a broker to structure a deal. 

At 365 finance, we can offer revenue-based funding of £10,000 to £500,000 in capital, so your business can thrive all year round. Apply for funding today without affecting your credit score. Or speak to our team to find out how we can help your business. To find out more, head to our website.