Table of contents
Defacto offers instant, short-term, 100% flexible financing for SMBs.


Lending-as-a-service (LaaS): How to use white label lending

Stephanie Bowker
May 28, 2024
6 min
Future of finance
Financing 101

Small business lending is seen as difficult and slow both for providers and customers. Any provider that wants to offer financing knows how many hurdles, checks, and balances they need to get through. And small businesses see traditional lenders as an obstacle precisely because the processes can be slow and full of paperwork. 

But this shouldn’t obscure from the facts: 

  1. Most small businesses need short-term financing to grow; and
  2. They’re crying out for easier, faster, and more flexible ways to get it.

As a fintech or financial services provider, you already know who these SMBs are and what kind of help they need. And the good news: you actually can provide that help without much effort. 

Lending-as-a-service lets you embed B2B financing directly within your existing platform or offering with no code and low code options

Interested in adding vital financing for your customers without taking on financial risk? Learn why you should embed lending services in your product, how to evaluate a LaaS, and how Defacto can help. 

What is lending-as-a-service?

Lending-as-a-service lets financial services providers and fintechs offer loans and credit services to customers without all of the technical and regulatory intricacies. You add financing or working capital loans to your product(s), without the hassle or the associated financial risks.  

This requires partnering with a third party — a LaaS provider. This is a regulated lending specialist that knows both the regulatory and practical aspects.

With this partnership in place, you can then easily offer loans and financing capacity to customers as a complement to your existing products. And a white label service is usually the way to go.

What are white label financial services?

White label services handle all of the backend nuts and bolts, but let you add your own branding and present services as your own. Lending is complex and potentially risky, so it’s easier and often safer to outsource these tasks to specialists.

Think of it like using Stripe as a payments interface on your website, or Intercom as your customer service chatbot. These tools are embedded and feel like part of your website, but you don’t have to actually build and maintain these technologies

Specifically for lending, white label services can include: 

  • Compliance and background checks. Third parties can handle the KYC process, verify documents, and ensure that customers are who they say they are.
  • Loan parameters and terms. Calculating the loan amount and repayment terms are specialized skills. Your LaaS provider should handle both. 
  • The loan itself. Lenders need millions of dollars or euros on hand — even billions. But you don’t need to raise additional funding or manage the large treasury required. The money flows directly from the third party to your customers. 
  • Collections. In the event that a customer is late to repay their loan, their obligation is to the third party and not to you. This interaction is handled between those parties, so you don’t need to worry about it.

In essence, all of the tricky parts of lending to business customers is out of your hands. You just provide the interface, and reap the benefits of giving your own customers the funds they need in a timely manner. 

What to look for in a lending-as-a-service partner

The beauty of lending-as-a-service is that it takes care of the most complex and tedious aspects of offering lending. You can continue to focus on what you do best, and lean on your partner’s lending prowess.

These are three essential factors that a third party LaaS provider must bring to the table. 

Easy loan applications

The actual process of applying for and receiving financing is powered by the third party, whether you choose a white label service or referral link. This needs to be simple for your customers to navigate, and create minimal follow-up or help from your team.

The customer will need to share documentation including: 

  • Proof of incorporation
  • Credit history and/or ability to generate revenue
  • Supplier or customer invoices used to determine the loan amount
  • Other financial statements as required

The best LaaS providers make this fast and easy, and let your customers connect their financial tools (including your own) directly. In many cases, the application process can take seconds, compared with months for some factoring or alternative financing providers. 

Rigorous risk assessment and compliance checks

If the above documents are submitted correctly, the LaaS provider will assess the loan and (hopefully) approve. They have the processes and expertise in place to do this quickly.

Two things to validate before you bring on a partner: 

  1. Assessments and checks must be legally sound, ideally to the highest standard. This is why we suggest choosing a regulated fintech provider
  2. The process should also be fast and avoid creating huge hurdles for you and your customers

It’s a tricky balance, but absolutely achievable. Particularly as technology improves and artificial intelligence speeds up administrative processes. 

The alternative is building your own compliance and risk department, which is a significant hurdle. This requires more people power, of course, but also specialized skills and knowledge. It’s far easier to let these specialists handle the work. 

They handle funding and management

Perhaps obvious, but the third party should have enough funds available to offer loans, and the infrastructure and systems to manage those on an ongoing basis. 

To be clear, the third party delivers the loan to your customer. You’re not handing over credit. The terms should be clear and agreed upon in advance, and the third party will ensure that the loan is repaid in due course. 

The best part is that customers can come back to this financing capacity whenever they need it. It’s there as part of your product any time the cash conversion cycle becomes an issue, or they want to invest in a timely growth initiative.

You provide a gateway to the cash your customers need, thanks to your trusted partner. 

How to get started with a white label lending solution 

Adding white label financial solutions should be simple and seamless. In fact, the process only involves three steps. 

1. Choose your LaaS partner

The provider you go with will ultimately depend on the service you wish to offer, but here are three top considerations when deciding between options: 

  • Technology: Not all LaaS partners offer the same technical setup. In most cases, opt for an API-first solution that integrates with as few hurdles as possible. 
  • Regulations: Your lending-as-a-service provider should handle the regulatory and compliance requirements — that’s a key part of their value. They should be regulated themselves and be able to prove their expertise and experience.
  • Geography: Where your business is based, and which financial systems you need access to. Will customers need to borrow and spend US dollars, Euros, or pounds? And which countries’ compliance laws do you need to factor in? 
  • Your target clients: Some providers are specifically designed for small business lending, while others might be reserved for larger enterprises. And some providers will be best suited to certain industries or business models. 
  • Partnership terms: You’ll want to shop around for the best possible contract terms. The LaaS provider will get a cut, of course, but the exact nature may vary. 

In most cases, finding the right lending partner is the most important step. From there, the work is largely operational. 

2. Integrate the lending service

Once you’ve chosen your third party provider, you need to integrate it into your platform or services. There are a range of ways to do this, from full white label to more simple partnerships. 

As an illustration, here are two of the ways that financial services providers integrate Defacto: 

  • Defacto Connect : With a little coding work, you can completely embed our loan service using your own branding, logo, and other customization. To customers, it will look and feel like a native part of your product. But Defacto handles the behind-the-scenes work including compliance, issuing the loans, and loan maintenance. 
  • Liquid Referrals: As a no-code option, you can provide a quick link out from your platform to Defacto’s. This shows customers that you have a trusted partner and encourages them to access the funds they need quickly, but with no product development on your part.

Learn more about lending-as-a-service with Defacto.

3. Optimise customers’ access to financing 

During their interactions with your products and services, there will be natural moments to offer a short-term loan. If you provide accounts payable software, for example, you might see that certain supplier invoices are approaching (or past) their due dates. To avoid penalties, you might suggest they take a loan with a lower interest rate than the late fees in question. 

Other customers might need to spend more during seasonal spikes. Based on their history, you could suggest working capital financing to get them through these busy periods

The customer makes this decision as a result of the good financial tips and tools you provide. Whether you’re a forecasting platform or payments provider, you can empower smart working capital management for your clients

Benefits of lending-as-a-service

Offering new services that customers want is obviously a win. But outsourcing lending in particular can be particularly beneficial.  

Create new revenue streams (and expand services)

The clear advantage is that you can easily offer a service where you previously couldn’t. And new services mean new revenue streams, whether as a standalone product or part of a higher-tier package.

And there’s a clear benefit for customers, too. As noted above, a successful SMB financing application can take months, and offers little flexibility. You can solve that issue for them with very little effort, which strengthens your appeal as a service

And they don’t have to go elsewhere for a lending provider when they already know and trust you.

Reduce risk & overheads

If building lending services was easy, every fintech would do it. Each and every financial service comes with regulations to learn and obligations to uphold. Not to mention the development time and costs involved. 

And even with the best-laid plans, product development always takes longer and more investment than you hope.

White label services handle all of that, and also give you a clear cost/benefit analysis from the beginning. You know exactly how much it will cost and how long it will take to implement, so you can quickly figure out whether it’s worth it. That peace of mind is precious.

Get best-in-class compliance

Not only will the LaaS provider get you up and running, but it’s their job to stay on top of the rules and ensure that you always meet compliance requirements

Most importantly, they handle the ongoing maintenance. If a jurisdiction changes its documentation requirements, you don’t need to worry about it. 

Reach new customers

As a result of an expanded service, you’re also able to serve a wider range of customers with different needs. Short-term loans are particularly useful for small businesses, and can help make this segment more profitable.

Fintechs which might otherwise not want to (or be able to) serve SMBs now have an added reason to attract and nurture these clients. And the same goes for mid-sized and even larger businesses. If smart working capital management is a key aim, adding lending can really help. 

Keep customers engaged

Let’s take the example of a modern finance tool that provides payment methods for small and growing businesses. Whether that’s company cards (credit or debit), invoice processing tools, or wire transfers, you’re there to ensure they can spend freely and optimally. So it’s best for you when customers are spending

But in a down economy and with interest rates climbing, many businesses have slowed their spending. They can’t afford to make the same short-term investments on advertising, product updates, and the like. And this impacts your position as their payments provider. 

If you can offer short-term, low-risk loans to help them pay suppliers on time and manage their working capital more effectively, your services become even stickier. In the end, if your customers are thriving, so will you. 

Traditional challenges with offering lending 

As we said above, if lending was easy, everyone would do it. For modern fintechs, payment providers, and even banks, lending is seen as a cumbersome and legally sensitive issue.

The most common complexities include: 

  • Compliance and due diligence. We won’t belabor this point. But if you don’t have compliance expertise in house, building it from scratch is intimidating. 
  • Risk profiling. Aside from compliance issues, there’s the basic matter of whether a company can (and will) repay their loan on time. You most likely don’t have the algorithms and industry knowledge needed to do this well.
  • Loan structures. Effectively pricing loans to make them profitable and attractive is also tricky. LaaS providers know how to appeal to business customers and can keep things both fair and enticing, but also commercially viable. 
  • Portfolio management. Once money has been lent to hundreds or thousands of customers, it’s a huge job just to keep track of where it’s gone and when repayments are due. 
  • Collections. Nobody enjoys calling in debts. If you have a trusted, professional partner, let them handle this work so you can keep your customer relationships on the best possible terms. 

Financing is seen as a difficult industry for good reason — all of the above is difficult and requires industry knowledge. That’s what makes lending-as-a-service so appealing. You can offer this important facility to clients without the significant energy and investment it would otherwise require. 

Partner with a customizable lending-as-a-service platform

The benefits of adding lending to almost any fintech or financial service are clear. You give customers easy access to the flexible financing they need, with very little effort or ongoing maintenance. 

It’s never been easier to offer full-service finance products, made to look and feel just the way you want them. Especially with Defacto. 

Defacto is the first regulated B2B lending fintech in France. We take lending seriously, so our partners like Qonto, Pennylane, Malt, and Libeo can focus on what matters most to them. 

Whether you want to start simple with no-code referral links, or white label our services as your own, we’re excited to partner with you.

Learn more about lending-as-a-service with Defacto. Or to talk more about adding lending to your services, get in touch

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