Interview with Oliver Mohseni Skoglund: Revolutionising SME Lending with Froda
Oliver Mohseni Skoglund, co-founder of Froda, shares insights on transforming SME lending through embedded finance and data-driven innovation. Discover how Froda is making financing accessible and fair for small businesses across Europe.
To start, could you please introduce yourself and tell us about Froda?
I'm Oliver Mohseni Skoglund, one of the co-founders of Froda. Our journey began in 2015 with a clear mission to give small and medium-sized companies (SMEs) the same opportunities to grow as large ones. We saw a significant gap in the market where traditional banks struggled to meet the needs of SMEs due to lengthy processes and subjective assessments. By digitising our operations and leveraging advanced technologies like machine learning, we've streamlined the lending process, making it faster, fairer, and more inclusive.
Our customers are the backbone of local economies, small businesses typically with one to five employees. These businesses account for a staggering 95 to 99% of all companies, depending on the region. This diverse group ranges from solo entrepreneurs to early-stage companies.
Given their need for smaller loans, our process is fully digital and automated, offering real-time credit decisions. Unlike traditional banks with their credit committees and paperwork, our system delivers 100% automatic decisions instantly. Customers log in and, within 7-15 seconds, know their available credit. We aggregate data from multiple sources, eliminating the need for manual data sharing. Customers can then choose to take the full loan, a part of it, or simply have the peace of mind that it is there if they need it.
Why did you choose to focus on SME lending?
At Froda, our focus on SMEs stems from a desire to address a genuine challenge. Our journey began with the simple idea to make financing more accessible for SMEs. As a team of friends passionate about making a difference, we drew inspiration from North America's merchant cash advance model. The approach of emphasising cash flow over balance sheets intrigued us. We wondered if we could implement something similar in the Nordics and Europe.
To test this idea, we went around Stockholm, knocking on the doors of restaurants, cafes, and small retailers. We saw firsthand the challenges these businesses faced in securing capital for growth. Traditional banks often overlooked them due to their size or lacked the flexibility to assess their potential accurately. Supporting small businesses is crucial, as they account for around 80% of new job creation and significantly contribute to tax revenues that fund essential services like healthcare. What's more is this challenge is not just a challenge for SMEs looking for financing in the Nordics, it spans across Europe.
Can you share some examples of the impact has Froda had on small businesses?
One of the most fulfilling aspects of Froda for me is seeing the real impact we have on small businesses. Take, for example, a florist we supported who saw her sales triple over a single weekend after securing a modest loan through Froda. Stories like hers underscore our dedication to empowering SMEs and fueling their growth.
And it's not just about one success story; it's a trend we've observed. Businesses using Froda typically experience growth rates seven to eight times faster than those without access to expansion capital. Large corporations leverage debt to accelerate their growth, and our mission is to provide small businesses with the same opportunities.
Seeing our clients reinvest and create new opportunities is immensely gratifying. Supporting them as they achieve milestones like expanding their teams is our true measure of success at Froda. We take pride in being part of their journey, supporting their growth every step of the way.
How does Froda stand out from other SME financing providers?
The problem with traditional banks when it comes to SME financing is that they are a poor match. They struggle to meet the needs of small businesses because of how they conduct credit scoring, which relies heavily on balance sheets. Their solutions are tailored for larger companies with material security, such as real estate or expensive equipment, which small businesses often lack.
We take a different approach by prioritising cash flow. Our machine learning algorithm analyses historical cash flow data to predict future performance with accuracy. This allows us to offer tailored financing solutions based on anticipated sales growth, rather than fixed collateral.
How does Embedded Finance fit into SME lending?
Embedded finance is crucial for us—it’s about integrating financial services seamlessly into non-financial platforms. Take how you can pay for your Uber ride directly within the app for example—it's all about making financial transactions seamless and convenient.
For us, it’s about leveraging our expertise in micro-business lending and embedding those services into various partner platforms. Through partnerships, we enable other companies to offer SME financing directly to their customers. This could be a neobank offering loans to their SME customers, accounting software, or a payment company. We make it easy for our partners to offer our financial services directly to their users.
Why is transparency important at Froda?
When we started Froda, we wanted to do more than just business as usual—we wanted to make a real difference. One way to do this was to focus on the underserved SME segment. Unlike traditional lenders, we avoid hidden fees and maintain a clear fee structure. Even if repayment extends beyond the initial timeline, costs remain fixed, aligning our incentives with our customers' growth.
Our commitment permeates every aspect of our operations, ensuring that our customers receive constructive feedback, even if their applications are declined. By providing insights into improvement opportunities, we empower businesses to return stronger and better positioned for success.
This approach not only helps our customers but also builds a relationship of trust and transparency. Unlike the frustrations often encountered with traditional banks, we believe in openly communicating the reasons behind decisions. It’s about growing together and ensuring that small businesses have the support and guidance they need to thrive.
What does the application process look like at Froda?
We’ve made applying for a SME loan as fast and straightforward as possible. We use open banking as one of our core data sources, which provides us with transactional data. Transactional data is vital for us to understand a business’s historical cash flow and other relevant behaviours that can affect the credit decision. We can see if a business has other loans or if there are any risky behaviours like gambling. This rich data allows us to provide more accurate credit scoring for small businesses.
Our machine learning algorithms then take this unstructured data and combine it with traditional credit data from credit bureaus. This process, done entirely through APIs, allows us to make quick, data-driven decisions. Since no human is making the credit decision, it's all based on data, our credit decisions are objective and reliable.
Why do your integrations matter?
Integrations make our job of collecting data much easier for our customers, which is essential because it helps us accurately and efficiently score small businesses. One of our key integrations for open banking data is Enable Banking. The transnational data from Enable Banking gives us a clear picture of how a business is doing and helps us predict future success and determine sustainable borrowing limits.
This method benefits our customers by offering a fair and objective credit scoring system based solely on their business’s actual figures. It eliminates biases related to presentation or personal background, ensuring a level playing field for everyone. Whether they're a budding entrepreneur or an established business owner, our score will reflect their true performance. Integrations like these make our lending process not only more convenient but also more equitable, giving every business the chance to succeed.
How did Froda’s partnership with Enable Banking come about, and why did you choose them?
Finding the right open banking partner was quite a journey. Most Open Banking providers focus primarily on consumers and Enable Banking stood out because they have a strong focus on business accounts too. We met them at various conferences and quickly realised that their strengths aligned perfectly with our goals and values.
We chose Enable Banking because of their commitment to businesses, offer extensive coverage in the Nordics and Germany, and meet our specific needs. Our tech and product teams have been thrilled with their responsive and agile support. Working with Enable Banking has been straightforward and rewarding, allowing us to enhance our services and better support our clients. It’s been a strong partnership that has made our journey together exceptional.
How do you see AI affecting the SME financing sector?
AI is set to impact many sectors, in a lot of different ways, and SME financing is no exception. At Froda, we believe AI will play a crucial role in interpreting unstructured open banking data, which will be a game-changer for us. While the black-box nature of AI presents some challenges, the possibilities it offers are huge. I’m excited about how AI can enhance our services, providing even more accurate and efficient lending solutions for small businesses.
What is your advice to any SME seeking financing?
In Sweden and some other European countries, borrowing can sometimes be viewed as shameful from a consumer perspective. But as a business, you need to see it differently. Borrowing money is an investment, not just an expense. You should calculate whether it’s sensible and will yield good returns. If you believe you can leverage the money effectively, consider a loan to accelerate growth. Explore various options beyond just banks, as there are more alternatives now.
How can businesses interested in Froda’s service get started?
Getting started with Froda is easy. Simply log into our portal, and within seconds, you can see your available credit with no obligations. This quick and straightforward process allows you to make informed decisions about financing your growth. We're here to help small businesses take the next step towards expanding their business, making the journey as smooth as possible.
