This blog post was originally published on Fintech Nexus on Aug.9, 2023.

We’re at a concerning milestone for both the U.S.’ savings and debt rates – the former seems to have stalled, while the latter is growing at an alarming rate.

A new Bankrate survey found 48% of U.S. adults have enough emergency savings to cover at least three months of expenses, vs. 49% in 2022, while nearly 22% have no emergency savings at all. These findings came as the Congressional Budget Office announced it expected debt held by the public would reach 118% of GDP by 2023, a record high. As adults rely more on credit cards and see their savings dwindle, tackling an emergency expense will become more difficult, especially as inflation persists.

One emergency expense that could cause a good deal of headaches in the coming years: home improvement – or, to be more specific, home repairs. Cracks in an aging roof or broken pipes can’t be ignored and may not be covered by insurance. But finding $1,000 in the budget will be out of the question for a significant portion of U.S. adults.

In recent years, embedded financing has stepped in to help fill that savings gap, and in the process has changed the way contractors approach payment terms with clients. Here’s how these offerings work in the home improvement sector – and how they can offer significant benefits for the homeowner.

Embedded finance for contractors

Embedded lending platforms essentially become an extension of the contractor themselves, integrating into their standard point-of-sale system as a white-label platform. This enables contractors to walk potential clients through their options immediately after an inspection and estimate are completed while offering them a chance at financing outside the increasingly harder to get approved for traditional avenues. Embedded lending platforms function as multiple banks within the contractor’s checkout, giving clients access to lenders willing to consider multiple creditworthiness factors – not just a one-size-fits-all credit score.

Embedded lending platforms also offer the contractor a significant upside once the loan is approved. Often with traditional loans, the lender will either release all the funds to the contractor or the building supplies manufacturer or hold on to the entire sum until they get authorization from the client that the job was completed satisfactorily. The former approach positions the recipient as a middleman, and the latter approach forces the contractor to front the cost of building materials until they can get paid. Embedded lending platforms that follow current best practices will release the proceeds to the appropriate parties as needed, ensuring contractors have procurement funds before work begins while giving the client assurance the job will get done right.

Embedded finance for clients

When a homeowner finds themselves in a pinch, their desperation can lead to financial decisions that will dig an even deeper hole – for example, working with a lender that loads borrowers with exorbitant interest rates, taking years to pay before the borrower even touches the principal. Embedded lending platforms aim to reduce reliance on these astronomical offers, ensuring the finance agreement doesn’t pile on potential clients as they’re already managing an emergency repair.

Embedded lending platforms also offer clients clearer flexibility around when to accept a loan. Say a potential client believes a recent storm is the cause of their roofing damage, but the insurance company is pushing back, suggesting it was simply wear-and-tear on an older roof. The client can work through the inspection process and receive an estimate valid for several months, giving them space to revisit the contractor once they’ve completed their insurance dispute.

A new way of doing business

As the U.S. continues to work its way out of post-pandemic economic challenges, it’s become clear consumers will need more options for tackling emergency expenses beyond big banks and strict approval algorithms – acceptance is getting more difficult and terms not as favorable. At the same time, contractors need more options for potential clients at checkout, helping them turn a sale that would’ve otherwise been a “no” into a “yes” without adding another complicated tool to their tech stack.

Embedded lending platforms promise better solutions for both contractors and clients. They give consumers access to more lenders with better rates for their financial situation and give the contractor more checkout options integrated seamlessly into their existing technology. They’re the right solution for today’s economic climate – and they’ll continue to be an important offering for contractors as customers look for a broader range of financing options in the future.