From Embedded Finance to Financial Co-Pilots: The New Era of Small Business Lending

The financial needs of small businesses have evolved dramatically over the past decade and so has the technology supporting them. Traditional lending models are broke, but how are they being fixed? From co-pilot models to fully autonomous financial agents, we’re entering a new era of AI-driven finance that will empower small businesses to thrive — seamlessly, intelligently and at scale.  

Embedded Finance is Driving a New Era of Small Business Lending

Whether you’re a multinational employing thousands or a regional business with headcount barely in double figures, the route to funding has traditionally been the same: the bank. It’s a one-size-fits-all solution that often leaves smaller businesses underserved.

This is an issue. Small businesses are a significant driver of the UK economy. According to the latest Federation of Small Business statistics, there are 5.45 million private sector business in the UK with fewer than 50 employees. This equates to 99.2% of the business population.

While larger companies have departments responsible for filling out long applications and corresponding with the bank, this is often a luxury that smaller shops can ill-afford. There are potentially millions of entrepreneurs currently facing unnecessary barriers when accessing the capital they need to manage cash flow, invest in growth, or simply survive. 

The Advantages of Embedded Finance

Thankfully, change is afoot, with vertical software platforms stepping in to plug the lending gaps. The digital platforms small businesses already use to run their daily operations — from eBay and Worldpay to Uber Eats and Vagaro – are now directly integrating financial products, such as working capital, payments, or insurance into their feature sets.

The key benefit here is that, as these small businesses are using these platforms every day, they are flush with important operational data. This enables financial offers to be personalised to the business in question.

eBay Seller Finance is one such example. Rather than force a small business to fill out a lengthy bank loan application, sellers receive personalised, pre-approved funding offers inside their dashboard. It’s seamless and reflective how small businesses actually operate: fast, digitally, and on the go.

AI-Enhanced Embedded Finance

Recent advancements in Generative AI have further bolstered these capabilities, creating a more personalised customer experience and offers. Near-instant analysis of both structured data like bank statements, transaction volumes and revenue patterns, as well as unstructured sources like social media and customer reviews, can paint a more comprehensive view of an organisation’s financial state. This then enhances the relevance of financial offers and reducing the inherent risk of lending sums a business might struggle to repay.

This easily accessible overview of a business needn’t just be used for loans, however. While small business owners certainly need funding, as alluded to at the opening of this piece, they also need help managing operational processes.

Smaller, leaner outfits have to juggle cash flow, payroll, inventory, marketing, and admin without the benefit of dedicated departments.  This is where the concept of a financial co-pilot can help. 

Rather than offering up just basic performance metrics, a financial co-pilot can provide live, contextual data including:

• Cash flow forecasts based on real-time sales
• Automated prompts to pay employees or file taxes
• Marketing recommendations tied to your quiet hours 

This is a huge boom for small business owners, enabling them to do more with less, reducing the administrative burden and enabling faster, smarter decision making through tailored insights and advice.

Looking to the future

AI agents are, of course, powered by data, and as regulations come into force promoting “Smart Data" sharing, such as the upcoming UK Data (Use and Access) Bill and the European Data Act, greater data access will drive innovation and help unlock the full potential of AI capabilities for small businesses.

For platforms like eBay, this will help strengthen customer loyalty and open up new revenue streams. For the fintech businesses developing these solutions, it provides a scalable distribution model. For the small business owners powering local economies, it means removing financial hurdles like credit scores and paperwork, and empowering them with insights previously only available to the biggest players in their industries.