Owning and operating a small business is hard work. Business development, customer service, project delivery, and cash flow management are among the many responsibilities business leaders balance. Rising costs and high interest rates have made small business ownership even more difficult, challenging both margin and demand. But technology has narrowed the gap between small and large businesses, empowering smaller businesses to more effectively grow, compete, and operate.  

Embedded lending is one such technology, growing in prominence among business owners for its ability to enhance customer experience, unlock bigger ticket sales, simplify operations, and provide accelerated access to cash. But many have never heard of embedded lending or, if they have, aren’t quite sure how to get started. In this blog, we’ll discuss how embedded lending empowers small and medium-sized businesses (SMBs) to offer consumer financing, surface some of its key benefits, and provide actionable tips on how your small business can offer financing to your customers.  

Business-to-customer financing by the numbers 

How many small businesses are offering consumer financing? And how has this offering impacted contractors or owners who are actively leveraging it in their business? Here are some numbers to know:  

  • Only 28% of businesses say they offer embedded payments—the leading form of embedded finance technology.  
  • Only 35% of contractors offer financing at every consultation, while 26% admit to never offering financing services.  

These stats suggest embedded financing is both under-implemented and under-utilized, leaving a significant untapped opportunity for merchants.  

  • 94% of businesses that offer a form of embedded finance say their revenue has risen since implementation.  
  • 90% of businesses that have used embedded finance since the pandemic report increased customer loyalty, among other benefits.  

And yet, SMBs who actively utilize embedded finance have seen a resounding positive impact on both revenue and customer experience. In our next section, we’ll unpack these benefits in a bit more detail.  

The benefits for small businesses 

  • Higher win rates: By integrating financing options into the purchasing process, merchants can capture sales that might otherwise be delayed or lost due to cash considerations. Customer financing leads to a direct increase in conversion rates.  
  • Bigger projects (with more add-ons): Financing options empower customers to afford project upgrades that are considered ‘nice to have.’ Consequently, merchants see an uptick in average order value or project size, contributing to increased revenue per transaction. 
  • Happier customers: Providing flexible payment solutions cultivates trust and loyalty among customers who appreciate fair rates and convenient experiences.  Repeat purchases, brand advocacy, and referrals naturally follow.  
  • Sustained sales growth: Offering financing helps overcome inflationary forces and empowers the business to enter new market segments more effectively, driving sustained business growth. 
  • Stronger differentiation: The development of a compelling financing offering provides an opportunity for merchants to stand out in a crowded marketplace, particularly against competitors who offer predatory financing or no financing at all. 

Quantifying the value of small business customer financing  

The benefits of consumer financing are both numerous and diverse, and some are easier to quantify than others. Let’s look at the potential business impact using a hypothetical scenario that considers several proposals, average job amount, and win rate before and after an embedded financing solution. 

Imagine a small business generates an average of 30 proposals per month, each totaling around $15,000 for bathroom remodels. Traditionally, the business wins 50% of these proposals, loses 30% to competitors, and fails to close another 20% due to customer inaction or deferred purchases. Currently, they do not offer any financing options, and their customers primarily rely on cash or personal credit cards for their purchases. Collectively, the business closes $225,500 in new deals each month. 

The organization then decides to implement a dynamic consumer financing solution in partnership with their local credit union. 

The business begins to leverage the credit union’s out-of-the-box marketing programs to boost proposal volume by 10%, now averaging 33 proposals per month. With customers now aware of the competitive financing rates available, the average proposal size increases to approximately $17,000. The organization’s win rate improves, and they are able to win 20% of the bids lost to competitors and 40% of the deals previously lost to customer inaction. As a result of these changes, the bathroom remodeler now closes a remarkable 63% of deals, catapulting monthly revenue to $353,430. 

Pretty compelling, right? If you’re convinced, read on for tips on how to find the right platform and partner to power your embedded lending program.  

Finding the right partner and platform  

Choosing the right platform and partner is a critical first step in developing a compelling embedded financing offering. The right platform and partner will simplify operations, streamline customer experience, and ensure you can maximize your program’s impact.  Here are some criteria to help guide your search.  

Key criteria for a partner 

  • Customer service and support: Opt for a lending partner that offers excellent customer service and support to assist both you and your customers through the financing process. This includes documentation, educational materials, and a responsive help desk. 
  • Varied financing options: Look for a lending partner that offers a diverse range of financing options tailored to meet the specific needs of your business and customers. This includes HELOCs, credit cards, and more.  
  • Term flexibility: Look for a lending partner that offers flexibility on loan amounts, repayment terms, and interest rates. This ensures you can cater to a wider range of customers with varying financial needs. 

Key criteria for a platform 

  • Intuitive user experience: Look for a platform that provides a frictionless and intuitive experience to merchants and end customers alike. Ease of use can make or break utilization.  
  • Seamless integration: Opt for a platform that seamlessly integrates with your existing checkout process and online purchasing capabilities, ensuring a smooth and hassle-free experience for your customers. 
  • Fast approval and funding: Choose a platform with quick approval processes and timely funding to minimize delays in payment and ensure this process can be easily scaled for a large volume of loans.  

Embracing embedded financing with LoanStar 

Offering financing options can be a game-changer for SMBs, unlocking new avenues for revenue growth and improved customer experience. With LoanStar’s MerchantLinQ platform, offering financing to your customers has never been easier. LoanStar representatives will match you with a lending partner who offers loan products best suited to your specific offerings. Using our intuitive platform and streamlined process, begin offering financing solutions at the point of sale and watch as your business grows.  

Why wait? Get started with MerchantLinQ today and kickstart your embedded financing journey.