FinTech targets SMEs in need of cash advances

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A trio of former Robinhood employees have founded a new FinTech aimed at small businesses, The Wall Street Journal reported on Wednesday (September 29th).

The new San Francisco-based company, Paraffin, will offer online cash advances, which can be reimbursed as a percentage of a company’s daily sales, according to the report.

Managing Director of Parafin Sahill Poddar was formerly Robinhood’s machine learning manager. He teamed up with Ralph Furman, the startup’s president, who was a data scientist at the brokerage app, and Vineet Goel, product manager, formerly responsible for risk and fraud engineering at Robinhood.

The three said they see an opportunity to build on the experience of FinTech infrastructure at Robinhood. They wanted to apply this to small businesses, which experienced conflict and problems during the pandemic as capital dwindled.

Parafin turned to Robinhood’s early backers for venture capital, with the WSJ reporting that the startup raised a Series A for $ 30 million earlier this month. Last year, they had a round of funding for $ 4 million.

Part of Parafin’s plan also includes a way to offer other financial products to small businesses, like bank accounts and insurance.

Companies have recently looked to add financial services to generate new revenue streams, and companies like Shopify and others have created tools to do just that.

And cash advances have a high approval rate, but online loans have historically been known to introduce risk.

Poddar said Parafin is not like other online lenders.

“We are categorically distinct from online lenders,” he said. “We are only reimbursed when the [small business] made sales.

He added that Parafin claims low and transparent fees. And he said the company was able to keep costs low because it offers financing through its partners, without needing to spend so much on marketing directly to small businesses.

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