How Embedded Capital Works for Platforms
Who underwrites, who funds, who bears the loss and who earns what when a platform offers capital to its customers. A plain comparison of a merchant cash advance, a credit line and a loan, with one worked example.
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10 min read
Published On
Sep 16, 2026
Read: 10 minutes
Last updated: September 16, 2026
In this guide
- The three structures side by side: what the business gets, how it repays, who is exposed
- One worked factor-rate example, and why a factor rate is not an APR
- The split of jobs between a platform and a capital provider, and what the platform earns
- What your product and support teams must not say to customers
A platform that offers capital to its customers is not necessarily becoming a lender. In a well-built program it does two things: it shows the offer where a business feels the need, and it shares the data that lets a capital provider decide. The provider does the rest. This guide explains how that works, so you can judge a program on the mechanics instead of the pitch.
If you want the revenue model first, read How Embedded Capital Programs Generate Platform Revenue. This guide goes under it: what the product is, where the risk sits, and what you can and cannot say about it.
Three Ways a Business Can Borrow or Be Funded
Platforms get asked about "capital" as if it were one thing. It is at least three, and they behave differently in a customer's bank account.
| Term loan | Credit line | Merchant cash advance | |
|---|---|---|---|
| What the business gets | A lump sum, once | A limit to draw from and repay, then draw again | A lump sum, once |
| How it is priced | Interest rate (APR) on the balance | Varies by provider. Slate shows one fixed payback before each draw | A fixed cost, quoted as a factor rate |
| How it is repaid | Fixed instalments over months or years | Payments on each draw; repayments free up the limit | Fixed payments or a share of sales until the total is repaid |
| Typical length | One to several years | A standing limit, repaid draw by draw | A few months (Slate: three to four) |
| Structure | A loan | A standing limit | A purchase of future receivables, not a loan |
The last row is the one that surprises people. In an advance, the provider buys a portion of a business's future receipts at a discount. The business owes the agreed total, paid from its receipts. There is no interest rate, because there is no loan. That is why the cost is stated as a factor rate and why the comparison with a loan needs care.
A credit line suits needs that repeat or are hard to size, like seasonal stock. An advance suits one known need with a clear payback. For the customer's side of that choice, see Business Line of Credit vs Merchant Cash Advance.
A Factor Rate, Worked Through
A factor rate is a multiplier on the amount advanced. Multiply the advance by it to get the total the business repays. The cost is the difference.
Oak & Iron Co. buys materials for a kitchen job (illustrative numbers)
Oak & Iron, a six-person renovation contractor, needs $30,000 for lumber and cabinets that it will pay for weeks before the client pays it.
Advance: $30,000. Factor rate: 1.20, about the 20% Slate works with. Total to repay: $36,000. Cost: $6,000.
Repayment over 16 weeks with equal weekly payments: $36,000 divided by 16 is $2,250 a week.
A factor rate has no time in it. The business pays money back each week, so it holds less than the full $30,000 for most of the term, and the same $6,000 cost means something different over eight weeks than over sixteen.
That does not make the product bad. A kitchen job that brings in $90,000 against $30,000 of materials can easily justify $6,000. A short, known payback is what an advance is built for. It does mean the honest question is not "is 20% cheap" but "does the money earn back more than it costs, and can the weekly payment fit the tightest week." Anyone presenting a factor rate as a small percentage is leaving out the time. Compare the dollars, the time held and the payment, not the headline figure.
Who Does What in an Embedded Program
There are six jobs. In most embedded programs they split between the platform and the capital provider like this.
| Job | Platform | Capital provider (Slate) |
|---|---|---|
| Show the offer to the customer in context | Yes: a banner, a drop-in component or an API-built screen | Supplies the components and the terms |
| Share data about the business | Yes: transactions, invoices, job history, as agreed | Reads it for underwriting |
| Underwrite and decide | No | Yes |
| Provide the capital | No | Yes, from its own balance sheet |
| Servicing, collections, compliance, customer support | No | Yes |
| Absorb credit losses | No | Yes |
The point of the split is that the platform has no credit exposure. If a business does not repay, the loss sits with the provider. That also sets the limits of the platform's role: it does not make the credit decision, so it should not talk as if it does.
You can start small. Slate's three entry routes are a no-engineering option where customers apply in Slate's hosted app after a pre-approval email, a drop-in banner and white-labelled iframe that one developer can add in under a week, and a full API for a native experience that takes a team and weeks. Starting with the first two shows what customers want before the third is built.
What the Platform Earns
Slate splits the spread with the platform 50/50. The spread is about 20% of funded principal, so the platform's spread share is about 10% of principal each time an advance is funded. Advances run three to four months, so a business that keeps using capital goes through about three cycles a year.
Take the Oak & Iron advance above. On $30,000, a 10% share is about $3,000 to the platform for that cycle. The platform did not underwrite, collect or carry the loss.
For how that scales across a customer base, with the sanity check against your annual recurring revenue, use the model in How Embedded Capital Programs Generate Platform Revenue and Guide to Revenue in Embedded Capital. The short version: size it from eligible customers, take rate and average advance, and distrust any result above about 5% of ARR.
What Your Team Must Not Say
Because the platform sits between the customer and the provider, its words carry weight. For the rules on messaging applicants, see Follow-Up Emails to Applicants: CASL, CAN-SPAM and TCPA.
- Never promise an approval, an amount or a timeline. Say "you may be eligible" and send the customer to the provider's own terms.
- Never call an advance a loan, and never quote a factor rate as an interest rate or APR. Say what the customer repays in total and how often.
- Never say the platform is the one deciding. The provider decides. The platform shares data.
- Never say "free money" or imply nothing is owed. The platform has no credit exposure, but the business repays more than it received.
- Never pressure. A business short on cash is a vulnerable reader. Show the offer, show the total repayment, and stop.
- Tell customers what data is shared and let them see the provider's terms before they apply.
General information. Rules on how advances and credit are described to customers depend on where the customer is. This guide is general information, not legal advice. Have counsel review your copy before launch.
Questions to Ask Any Capital Partner
- Who is the funder, and is the capital on its own balance sheet?
- Who underwrites, services, collects and answers customer questions?
- Who is responsible for compliance, and can you read the terms the customer signs?
- What happens to a customer who cannot repay? Who handles it, and in what words?
- What do you earn, when, and what happens to that revenue if a customer defaults?
- What data do you need from us, and what can the partner do with it?
- Can we start with a banner before building anything?
A partner who answers these plainly is worth more than one with the best headline rate. For a longer list, see Embedded Finance Companies: What to Ask. Slate funds businesses with merchant cash advances and credit lines, through the platforms they already use. Its merchant cash advances are available in Canada.
Common Questions
Is a merchant cash advance a loan?
Not in form. The provider buys part of the business's future receipts for a lump sum and is repaid from those receipts. There is no interest rate. In practice it is short-term financing, and it should be described honestly as such, including the total repaid.
Can a factor rate be converted to an APR?
Only roughly, and the answer depends on how fast the business repays, so the two should not be compared directly. Compare total dollars, the time the money is held and the payment schedule instead.
Does the platform take credit risk?
In Slate's model, no. Slate provides the capital and handles underwriting, servicing, collections, compliance and loss. The platform's job is to surface the offer and share data.
How does the platform get paid?
Through a 50/50 split of the spread. The platform's share is about 10% of funded principal per advance cycle.
Do we need engineering to start?
Not necessarily. A no-engineering route uses pre-approval emails and Slate's hosted application. A banner with a drop-in iframe takes one developer under a week.
What if a customer asks for a specific amount?
Do not quote one. Amounts and terms come from the provider after it reviews the business. Point the customer to the provider's own offer.
Read next: How Embedded Capital Programs Generate Platform Revenue · Business Line of Credit vs Merchant Cash Advance · Follow-Up Emails to Applicants: CASL, CAN-SPAM and TCPA
