Embedded finance
Embedded finance

Overcoming the working capital challenges faced by merchants in the U.S.

Merchants in the United States are facing a period of deep economic uncertainty. However, revenue-based financing provides them with a new way to access critical business funding and overcome working capital challenges at their own pace.

Goldman Sachs’ Insights report, Voice of Small Business in America, states that access to capital is the number one constraint that small businesses in the United States face. Working capital challenges demonstrably lead to fewer investments in equipment, reduced employee pay, and downsizing. If an SME is functioning with insufficient working capital, it can’t meet many of its core business needs.

Working capital challenges for merchants 

So, what are some of the working capital challenges that have emerged due to rising inflation, supply chain issues and lingering effects of the pandemic?

Inventory Levels

17% of US businesses report challenges with purchasing inventory or supplies to fulfill their contracts, which means that they can’t purchase the resources needed to operate. Ultimately, this plays a long-term role in reducing sales and customer satisfaction for the business.


Staffing is also a critical concern for any business with working capital constraints. Without adequate cashflows, existing employees cannot be paid on time and new employees cannot be hired to meet growing business demands. Ultimately, 32% of businesses in America cut staff hours or downsize operations, lowering their operational efficiency in the long run.

Overhead Expenditure

Bills are also a consistent expense for a business which requires a constant stream of working capital. But the amount a company might need to pay can vary due to wider political and economic circumstances, bringing us to one of the most disruptive working capital challenges SMEs face. 28% of small businesses in America have made late payments on bills and operating expenses due to working capital challenges.

Unforeseen Events

Unplanned effects on the business such as the cost-of-living crisis, rising energy costs, inflation, supply chain issues, and the market response to political disruption can all take a profound toll on a small business as well. Ultimately, all these factors affect sales and lead to fluctuating cash flows for the business. For example, during the pandemic, 41% of small businesses reported having reduced operations due to lack of day-to-day working capital.

For an idea of how working capital challenges might affect a small-to-medium sized business, let’s consider the example of an e-commerce custom furniture manufacturer. This small business has five employees handling orders, distribution, manufacture, and marketing. It requires regularly updated inventory in order to make new products, and has significant outgoings on rent and energy to keep its workshop running. These are challenges in the best of times, but with a shortage of raw materials due to political changes and inflation, and increased energy bills, maintaining working capital is more of a challenge than ever before.

Voices of Small Business in America, Goldman Sachs

Why small businesses struggle to access credit

To overcome these challenges, what our furniture manufacturer needs is ready access to credit and more inclusive financing options. In fact, 54% of businesses that seek financing use it to improve cashflow, organize working capital, and enhance daily operations. But credit to supplement working capital isn’t always available to SMEs. 

The Federal Reserve has found that 31% of businesses struggle with credit availability to help pay their operating expenses. That’s partly because according to traditional lenders, 91% of all US businesses have high-risk credit profiles. Hence, many young SMEs are not able to access the funding they need to grow their business.

How revenue-based financing can help merchants overcome financing hurdles

Ultimately, outdated financial data points, demanding repayments, and high interest rates are all reasons why SMEs hesitate to seek financing from traditional lenders. Revenue-based embedded finance is a critical way for them to overcome their working capital challenges due to the following reasons:

  • Flexible repayments are integrated into the model so businesses are only required to repay a percentage of what they earn; meaning a proportional amount of capital is used to repay to financing and a sufficient amount is left at hand to manage bills, inventory, and cash flow.
  • Interest rates aren’t an issue with revenue-based embedded finance, meaning SMEs have one less economic variable to worry about. Compared to credit cards—which 52% of businesses turn to when facing working capital challenges—fees are affordable and transparent, so companies can borrow and invest with confidence.
  • Equity and collateral aren’t at stake for companies seeking funding through revenue-based embedded finance, so businesses remain in full control of their interests.

For platforms and brokers: Factors to consider when choosing an embedded finance provider 

In order for merchants to access financing solutions, the responsibility falls on brokers and platforms to bridge their sellers with an embedded finance provider. For them, there is a broad range of factors to consider before they partner with the right embedded finance provider. These are some of the advantages a broker or platform must be able to provide:


This is a critical factor to counter some of the unforeseen working capital challenges that small businesses are liable to face in the U.S. They need access to credit instantly and not get bogged down by long application processes. For that reason, 57% of all SME credit applications are abandoned before completion.  With revenue-based embedded finance, platforms and brokers can help approve applications for credit in minutes, not days or weeks, with open banking capabilities and automated credit risk assessment models that bring more SMEs under the fold of embedded finance.

Approval Rates

As we’ve seen, 91% of all US businesses have credit profiles that traditional lenders would consider high-risk. But that’s because traditional lenders aren’t able to see the full picture. Revenue-based embedded finance is subject to different regulations than debt financing and allows lenders to consider credit markers including social media presence and online reviews. Many completely viable small businesses are denied credit because they don’t meet a set of outdated standards, but revenue-based financing helps platforms make a more holistic assessment of their repayment capabilities and able to fund more businesses than ever before.

Payment at Source

For small businesses to plan ahead, it’s important for them to keep a watchful tab on their cashflow. With revenue-based embedded finance, platforms can take repayments from sales at the source and send the remaining amount directly to the merchant's bank account. With this, they can repay only as they earn and not deplete cashflows when business is slow.

Final thoughts

It’s an unpleasant truth that for SMEs, working capital challenges will always be present in some shape or form. However, by partnering with an embedded finance provider, brokers and platforms can keep businesses operating even during difficult times with access to fast, flexible and affordable financing solutions.

To learn more about how you can help SMEs face their working capital challenges with revenue-based embedded finance, book a demo today.

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