Running a small business, while fulfilling, can also be stressful. The average small business in the US is 25 days away from running out of cash. Even though the business may be healthy, money comes in and goes out on different schedules. A law firm invoices five clients and waits 60 days to be paid, while payroll runs every two weeks. No wonder ready access to capital is like oxygen to a small business owner.
This is the problem that Fundbox exists to solve. Our mission is to power the small business economy through capital, and we do this by embedding financing solutions inside the tools that small business owners use every day. So we were naturally excited to see “embedded lending” as a popular phrase at Money 20/20 this year. However, most people use it to mean a loan offered inside someone else’s software, which is only a third of the story. Embedded lending has three dimensions, and all three should be present.
Distribution is the first dimension, and most people talk about it. The financial service is presented inside a platform that the customer already uses. The benefit is real, but on its own, it is just a better acquisition channel.
Data is the second dimension, and fewer people internalize it. Many platforms already have valuable information about the business, such as invoices, payments, and receivables. Using that data across pre-qualification, approval, and ongoing monitoring improves the embedded value proposition. Without it, you are running a traditional credit process behind an embedded frontend.
Product is the third dimension, and almost no one gets it right. The ideal credit product should be contextually relevant for the workflow it lives in. A law firm waiting on invoices might want invoice financing. A business buying supplies that take a month to turn into revenue needs 30-day terms at checkout. A merchant with daily card volume needs something that flexes with it.
Distribution without data means underwriting without a deep understanding of the business. Data without the right product means offering a 12-month term loan to a business with a 45-day cash flow gap.
Automated underwriting on platform data also changes the unit economics. Underwriting a small business through a traditional process costs a bank $3,000 to $5,000 in human capital. That cost is reasonable on a $5 million loan and makes no economic sense when a hairdresser needs $5,000. Over 95% of Fundbox’s credit decisions are made with no humans in the loop and in less than 30 seconds. This level of automation allows Fundbox to serve even micro SMBs with robust economics.
Embedded lending works on trust. Fundbox partners with platforms that millions of small business customers trust, including Intuit, SoFi, Stripe, and eBay. We inherit that trust, and we need to earn it every day by living up to our promises. Our commitment to platforms and their SMB customers is to review small businesses quickly with minimal time and effort from their owners, to be fair and consistent, and to deliver a responsible amount of capital. This is the standard we’ve held ourselves to as we’ve served 200K small businesses with $7B in capital.
I discussed all this, and more, with JD Durkin at Money 20/20 USA in Las Vegas. Watch the full conversation here.