2023 Roundup: SMB Financing Gets a Makeover with Embedded Finance

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SMB Financing: Cat Bath or Credit Path?

For small and midsize businesses (SMBs), trying to get a loan from traditional financial institutions may feel like trying to convince a cat to take a bath—challenging, frustrating, and often ending in scratches. Despite being the unsung heroes of the global economy, SMBs have been stuck in a quagmire, dealing with paperwork mountains, collateral hurdles, and credit history-perfectionist gatekeepers. A survey by EY highlights that 48% of SMBs yearn for swift credit access, as they find themselves grappling with loan processes so intricate they make a Rubik’s cube look like child’s play. 

Traditional credit models applied by incumbent financial institutions fall short in catering to SMBs’ diverse and rapid needs, leading to low approval rates and high costs of capital. The focus on larger loan sizes, reliance on credit bureau data, and an asset-centric approach contribute to the financial exclusion of SMBs with limited credit history from formal credit channels. This exclusion creates a cyclical dilemma for SMBs, as rejected loan applications prevent them from building a credit history, perpetuating their exclusion.

Enter the world of embedded lending, which addresses several challenges that previously hindered market players from becoming lenders, such as the high costs associated with customer acquisition, underwriting, servicing and monitoring SMB loans. Operating on a distinctive partnership model, embedded lending harnesses the strengths of licensed financial institutions or fintech lenders, contributing underwriting expertise and regulatory compliance, in tandem with vertical SaaS platforms that provide contextual data for underwriting and digital channels for better placement of financing products. 

Vertical SaaS platforms catering to various needs of SMBs, including accounting, commerce, supply chain, logistics, digital payments, etc., have emerged as the new allies for SMBs struggling to secure loans:

  • Accounting giant Sage teamed up with Funding Circle, Swoop, and Satago to facilitate lenders get a complete and accurate view of SMBs’ financial activity from accounting systems to extend loans to businesses overlooked by traditional lenders.
  • Commerce platforms Rappi and Amazon joined forces with R2 and YouLend, respectively, leveraging cashflow data and growth data garnered from customer reviews to offer revenue-based financing.
  • Supply chain platform BuyHive, in tandem with 40seas, and logistics heavyweight DP World in collaboration with Standard Bank, pioneered partnerships that utilise sourcing and procurement data to provide essential trade finance to SMBs.
  • Digital payment platform Google Pay partnered with ePayLater and DMI Finance to extend business loans to SMBs in India, utilising the rich commerce data flowing through their digital payment acceptance channels.

The integration of accounting, sourcing, growth, payments and commerce data effectively complements traditional sources of data, such as bureau data, business owners’ data, etc., used by traditional lenders. By amalgamating these diverse datasets, vertical SaaS platforms are able to construct a holistic representation of a business’s financial activities to base their credit-underwriting decisions. 

SaaS x Lending: SMBs' Global Growth Spree

In 2023, vertical SaaS platforms for SMBs around the world forged partnerships with banks and fintech lenders to extend embedded financing products to SMBs:

  • In developed markets such as the US, UK, Europe, and Canada, the prevalence of high credit card penetration propelled embedded lending forward. Payment processors enabled access to cashflow data derived from card payments to help assess creditworthiness and offer merchant cash advances against credit card sales. 
  • In emerging markets like Brazil and Colombia, commerce platform Rappi stood out, utilising alternate cash-flow data sources to pioneer revenue-based financing tailored for restaurants, addressing the unique needs of local businesses. 
  • In India, Google Pay and PhonePe leveraged the burgeoning popularity of UPI payments for customer-to-business transactions to launch business loans for SMBs. 

These examples underscore how diverse vertical SaaS platforms worldwide harnessed their extensive data pools and distribution channels to facilitate embedded lending, thereby reshaping the financial landscape for SMBs on a global scale.


In the current macroeconomic situation of high interest rates and high inflation, embedded lending is poised to play a significant role in enabling financial inclusion for SMBs. Vertical SaaS platforms, fintech infrastructure players, traditional lenders, and alternate lenders are joining forces with SMBs for an accessible, efficient, and growth-driven future in embedded finance. 


Senior Research Associate

Risav is a senior research associate at WhiteSight, where he spends his days navigating the complex fintech landscape and poring over market trends. When he's not decoding the world of fintech, you'll find this sports fanatic decoding the perfect curveball on the football field.

Founder & CEO | sanjeev@whitesight.net

Sanjeev is a fintech aficionado who loves to explore the depths of the industry as much as he loves to explore the depths of the ocean in his scuba gear. He is the founder and CEO at WhiteSight, bringing a wealth of research and advisory experience to the fintech world.

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