It’s no secret that securing small business financing isn’t easy – especially as a startup. Most banks and traditional lenders require at least 2 to 3 years of business history and steady revenue levels – which is oftentimes impossible for young, fast-growing companies to provide.

This is exactly what San Francisco-based fintech startup, Parafin Inc., aims to change. Founded by former Robinhood employees, Paraffin helps connect small businesses with financing partners to offer digital cash advances. Business cash advances work similarly to merchant cash advances, a type of financing that’s repaid with a percentage of a business’s future sales.

Merchant cash advances are popular because of their high approval rates – especially in comparison to bank loans. Typical approval rates for cash advances were about 84% in 2020, while business loans had among the lowest, at around 57%.

Parafin’s founders include chief executive Sahill Poddar, Robinhood’s former head of machine learning, Ralph Furman, current president and one-time data scientist at Robinhood, and Vineet Goel, the company’s chief product officer, who also served as head of risk and fraud engineering at Robinhood. The startup is also backed by some of Robinhood’s early venture investors.

The founders were inspired to launch Parafin after witnessing small business financing shrink during the Covid-19 pandemic. They aim to boost the supply of capital available to small businesses to help them reach their goals.

Parafin is able to offer financing without financial or compliance risks. Its application process is straightforward and funding works incredibly fast – an upgrade from waiting weeks at a bank or credit union. The young startup also prides itself on low, transparent fees that only come into effect once borrowers generate revenue.

Parafin’s cash advances also allow businesses flexibility when it comes to spending funds. Most banks require detailed information on exactly how borrowed funds will be used before approving an application. Borrowers oftentimes run into restrictions on various expense categories.

However, funds from Parafin can be used for a wide variety of business expenses, including hiring staff, purchasing equipment, managing cash flow, or fueling growth initiatives.

Parafin also plans to introduce other financing products for small businesses in the future, including bank accounts and even insurance.

One of Parafin’s first clients is Mindbody Inc., a software provider of cloud-based online scheduling and management tools to fitness industry businesses. Parafin is scheduled to power Mindbody Capital, Mindbody’s financing division, to offer the company’s small business clients customizable financing options.

How Parafin Fits In With Other Business Financing Platforms

Paraffin is being launched at a time when businesses are witnessing a growing number of options for financing. Up until recent years, banks and credit unions were the main sources of small business financing.

Nowadays, innovative solutions ranging from crowdfunding platforms to online lenders are popping up – diversifying the market and making lending more accessible. This is helping previously underserved businesses access the funds they need to ease cash flow issues and fuel growth.

Parafin is joining the ranks of online business financing providers, like Square Capital, Kabbage, and National Business Capital.

Like National, Parafin offers a speedy underwriting process focused on sales rather than credit scores. This is especially helpful for newer small businesses that may not have had the time to build up credit, but still need financing nonetheless.

However, Parafin’s funding amounts cap at $250,000, which may not be enough capital for businesses looking to take on larger initiatives.

Parafin’s financing options are also limited to cash advances, while platforms like National offer a more diverse range of lending solutions including loans, lines of credit, invoice financing, and more.

Learn more about National’s small business financing solutions here.