A guide to revenues in embedded lending
Embedded lending and financing options have the potential to generate robust new revenue streams. Learn how it works and how much you could be earning.
The rise of embedded lending
In recent years, leading software companies like Toast, Shopify, DoorDash, Mindbody, and Square have started building lending and financing into their products.
For their customers, it addresses a key pain point: too many small businesses have trouble getting the financing they need from traditional sources. In fact, according to the Fed, only 31% of American small businesses received all the financing they sought in 2021—and many more never applied in the first place, for fear of being rejected.
Companies like Toast and Shopify are in a great position to help; that’s because they understand their customers’ business models and their cash flow. As a result, they can offer attractive lending and financing options that are tailored to their customers’ needs.
Embedded lending and financing enable these companies to generate robust new revenue streams. To cite just one example, Shopify launched Shopify Capital back in 2016. In 2025, the company recognized revenue of $258 million in interest and fees from its lending services, while extending $4.2 billion in loans and merchant cash advances to its merchants.
When deciding whether to offer their customers lending and financing options, many founders and product folks ask, “Will it be worth it?” They’re wondering whether the revenue they generate will justify the resources they’ll need to invest.
This guide will demystify those calculations. We’ll explain how embedded lending works and give you a straightforward way to calculate the revenue you can expect to generate. We’ll discuss:
- How embedded lending and financing work
- How each type generates revenue
- How much you can expect to earn
- How to launch a lending program in weeks
A quick primer on embedded lending
When a tech company makes lending or financing options (e.g., charge cards, cash advances) available inside their app or website, that’s embedded lending.
In our Embedded Lending Guide, we explore the different types of embedded lending: how they work, how they generate revenue, and when they’re a good fit. But it’s helpful to revisit the basics.
In this guide, we’ll cover three types of lending and financing: business charge cards, invoice factoring, and merchant cash advances.
- Business charge cards. Your customers use charge cards to make purchases at the point of sale. The funds to make those purchases are drawn from a line of credit. Balances are paid off by the end of each repayment period (typically 30 days).
- Invoice factoring. Your customer sells you the right to collect payment on invoices that are due to be paid by their customers. In return, you send them funds right away and get paid back when the invoice is paid.
- Merchant cash advance. You purchase a portion of your customers’ future revenues, typically at a discount. In return, you send them funds right away and get paid back by deducting a portion of your customers' daily or weekly revenue.
How charge cards generate revenue
Whenever someone makes a card purchase, it generates interchange revenue.
If the card has your logo on it, you’ll receive a portion of that revenue. (This is a great reason to launch branded cards in the first place. Your customers are going to spend money—so why not help them do it in a way that’s convenient for them and rewarding for you?)
The amount of raw interchange a business charge card generates varies based on the size of the transaction and the type of merchant, but a typical range is 2.5–2.7%. After deducting the costs you must pay to the network, the processing bank, and other vendors, you can expect to take home about 2% of the total transaction value as your share of the revenue.
Your customers are going to spend money. Why not help them do it in a way that's convenient for them and rewarding for you?
To show how it works, let’s use an example. Say you lead Product at Slate, a point-of-sale (POS) and business-management software company that helps interior designers simplify operations, increase sales, and streamline the customer experience.
For simplicity’s sake, let’s assume you’ve got 5,000 customers with charge cards, and each of them spends $10,000 per month. Based on the estimated 2% of card spend that you’ll take home as net interchange revenue, this yields $1 million per month or $12 million per year.
How invoice factoring generates revenue
Invoice factoring can be a great fit for companies that have visibility into their customers’ invoices, orders, and future payments.
To recap: invoice factoring is a type of embedded financing in which your customers receive funds right away by selling you the right to collect payment on one of their invoices. You buy these invoices at a discount; that is, you pay your customers less than the face value of the invoice.
The discount—the difference between what you pay your customer and what their customer must pay—is the primary revenue stream associated with invoice factoring.
The difference between what you pay your customer and what their customer must pay is the primary revenue stream associated with invoice factoring.
How much should you charge? Companies that offer invoice factoring generally charge 1–5% of the total value of each factored invoice. The rate varies based on several factors, including the likelihood that the end-customer will repay the invoice and the amount of time before it is due to be paid.
Let’s say you have 2,000 customers who factor invoices with you, and each of them factors, on average, $25,000 worth of invoices per month. If you discount each invoice by 3%, that would yield $1.5 million in monthly revenue, or $18 million in annual revenue.
How merchant cash advances generate revenue
Merchant cash advances are a great way to provide financing to your customers, especially if you’re already helping them accept payments (credit cards, invoices, etc.).
As with factoring, merchant cash advances are typically priced at a discount, meaning the amount you send your customer is less than the amount they must repay. A discount of 5–10% is typical, based on the borrower’s creditworthiness and the length of the repayment period.
What’s different about merchant cash advances is the way they are repaid. Unlike most loans, which are typically repaid in fixed installments until the end of a set repayment period, merchant cash advances are typically repaid daily or weekly, based on a percentage of total daily or weekly sales. The term varies based on the amounts of the daily or weekly payments.
By programmatically collecting small, regular payments from your customers, you can reduce the risk of nonpayment.
Imagine that your customer, an interior design firm, is approved for a $50,000 advance with a 5% discount. You would send them $47,500 right away. Over the next few months, they would repay $50,000—and you would keep the $2,500 difference as revenue.
To understand how the advance is repaid, let’s say your customer generates an average of $20,000 of daily sales via your product. You could arrange to programmatically deduct 10% of their daily sales until the advance is fully repaid (about 25 days in this example).
By programmatically collecting small, regular payments from your customers, you can reduce the risk of nonpayment. And by aligning daily repayment amounts with fluctuations in their revenue, you can help them manage cash flow.
Zooming out, let’s say you provide 1,000 merchant cash advances each year. The average amount is $200,000, at an average discount of 8%. That would create $16 million of annual revenue for your company.
Why customers choose embedded lending
At this point, you may be asking, “why would our customers want lending or financing from us?” There are four main reasons:
- Small businesses are underserved. In our study with the Harris Poll, we learned that 62% of American small businesses can’t get the financing they need. That’s because traditional lenders don’t understand their business models, so the financing they offer often doesn’t make sense.
- Better underwriting. You understand your vertical, and you’ve got visibility into your customers’ cash flow. That enables you to do a better job of underwriting your customers—deciding whether and how much to lend them.
- Better terms. Better underwriting enables you to offer more favorable terms: fewer fees, more competitive interest rates, and repayment options that are tailored to their needs.
- Convenience. This is perhaps the most important reason customers choose embedded lending: it’s available in their moment of need, inside the tool they’re already using. The convenience of this arrangement can’t be overstated: when given the choice, customers prefer not to go to a standalone lender.
What does it take to launch?
Many founders and product folks assume that launching embedded lending will require years and millions of dollars.
Fortunately, this isn’t the case. With a the right infrastructure partner, it’s usually possible to stand up an embedded lending program in a matter of weeks.
Unit is a financial infrastructure platform for software companies that want to store, move, spend, and lend money inside their products. When you partner with us, you gain access to the following:
- Bare-metal APIs for credit accounts, money movement, deposit accounts, wallets, and cards. These building blocks run on direct rails and a single native ledger, giving product teams the flexibility to configure lending products around their customers, underwriting model, and business needs.
- The tooling required to launch and run those products, from controls, policy enforcement, and compliance and fraud tooling to reconciliation, statements, tax forms, bank reporting, SDKs, and embeddable components.
- Managed operations: You can manage responsibilities themselves or delegate parts of the ongoing operation to Unit. Managed operations can include compliance and fraud reviews, disputes, escalation support, and the procedures required to operate effectively with the bank.
If you’re thinking about how embedded lending options could add value to your platform, please reach out. We’d love to brainstorm with you.
