Confidence and Cash Flow Shape Working Capital Strategies for Middle-Market Firms

The link between feeling good and playing good isn’t just tied to sports. It can hold sway in the business landscape, too.

How a business feels and its sense of certainty may be just as important as how it performs. As interest rates, supply chain fragility, and inflation continue to unsettle markets, firms are not just navigating numbers. They’re navigating their own confidence.

That’s revealed in the latest findings from the PYMNTS Intelligence “May 2025 Certainty Project: Embedded Lending Hits Friction as Mid-Market Firms Navigate Uncertainty” report, which shows how corporate sentiment (certainty) can drive funding preference. In uncertain times, capital decisions are no longer purely about numbers. They are about narratives — how a company sees itself, its industry, and its future.

The study, which surveyed 500 mid-market U.S. firms across sectors, shows that companies with high certainty about their outlook are nearly twice as likely to pursue financing for strategic reasons such as growth investments, modernization, or talent acquisition, compared to their less confident peers.

Conversely, firms experiencing high uncertainty tend to use financing reactively. Their borrowing is more defensive in nature, aimed at solving immediate liquidity issues, covering cost overruns, or cushioning cash flow volatility.

This behavioral split is critical. It suggests that working capital decisions are not just financial but psychological. In effect, confidence acts as a throttle: When firms feel in control, they accelerate toward opportunity. When they feel uncertain, they brake, even if growth capital is available.

Confidence vs Caution

Embedded lending, which includes credit offered directly within platforms such as ERP systems, supply chain portals, or B2B marketplaces, has been touted as a transformative innovation in business finance. Its promise lies in speed, convenience, and contextual relevance.

However, despite these advantages, adoption rates remain relatively modest. Only around 20% of mid-market firms surveyed reported using embedded lending solutions. This figure is notably low given the increasing digitization of B2B commerce. The reluctance, per the report, stems from several key factors: lack of transparency, perceived complexity, unclear terms, and, most importantly, a mismatch between product design and the psychological profile of the borrower.

High-uncertainty firms, which stand to benefit the most from embedded lending’s speed, are also the ones most hesitant to adopt it. These businesses often prioritize clarity, predictability, and trust — attributes they more readily associate with traditional banking relationships. For them, embedded credit solutions may appear opaque or insufficiently regulated.

Read the report: Embedded Lending Hits Friction as Mid-Market Firms Navigate Uncertainty

Conversely, confident firms may be more open to experimenting with embedded tools but often find traditional credit lines more flexible, scalable and negotiable. As a result, embedded lending struggles to gain widespread traction despite its functional appeal.

Rather than offering generic credit products, the study implicitly finds that lenders can tailor their offerings to align with a firm’s confidence profile. Doing so may not only increase adoption but also has potential to strengthen the borrower-lender relationship.

For FinTechs and embedded finance providers, the path to relevance lies in transparency and customization. Speed alone is no longer a differentiator; it’s an expectation. To win trust, embedded lenders must focus on clear terms, integrated reporting, user-friendly interfaces and risk education. Offering flexible repayment plans or tiered access to credit based on real-time business performance could further enhance relevance.

Moreover, embedded lending platforms must consider emotional design in their user experience strategies. A dashboard that explains credit terms in plain language or provides scenario planning tools can alleviate anxiety and build confidence.

For traditional banks, the findings reaffirm the enduring value of relationship-based lending. In times of uncertainty, businesses revert to what they know and trust. Banks that can offer personalized advice, regulatory assurance, and flexible credit terms are well-positioned to retain mid-market clients.

Ultimately, understanding the psychology behind working capital decisions isn’t just good for business. It’s essential for building a resilient, inclusive and forward-looking financial ecosystem that supports growth for businesses of every confidence level.