How Froda Reached an $80M Run Rate Lending to 150K European Small Businesses

Think of us like an enabler of micro business lending. What we want to do is to really close the financing gap in Europe, where small businesses, micro businesses have a really difficult time finding external financing. So far, we've supported a 150,000 small businesses.

$23,000 average loan size times a 150,000 small businesses funded is 3,450,000,000 funded life to date.

So last year, we did about 57,000,000, something like that.

Oh, this is a crazy growth rate. Congratulations, man. That's amazing. I

mean, you all as well. Right? I I would love it to be more than a 100% year on year, but...

So here we go. We're excited to have Oliver with us today.

His name is Oliver Mohseni. He's the co founder of Froda and a leading embedded finance provider and SME lender active in seven different markets. This is not like a startup guy dropped out of college in his dorm room. He's a PhD molecular biologist turned fintech entrepreneur. He's on a mission to make financing simple, accessible, and seamless for small businesses. Oliver, you ready to take us to the top?

I am. Thanks for having me, Nathan.

I'm glad you're here. It's very timely. Everyone in SaaS is going seat based pricing is dead. We have great customer relationships. How do we launch an embedded finance platform? So tell us what you're selling.

Yeah. So think of us like an enabler, just like you said, of micro business lending. So what we wanna do is to really close the financing gap in Europe where small businesses, micro businesses have a really difficult time finding external financing, which results in them not being able to enable their growth ideas. And I mean, it's of course sad for them, but it's also a big loss for society because considering that they employ like

two thirds of the workforce in Europe, they create 85% of the new jobs in Europe and still they don't have this kind of basic infrastructure of external financing to grow and do much more. So what we do is basically we integrate

the full embedded lending journey from first origination window all the way down to balance sheet is on us. So we have the full infrastructure layer, we have the balance sheet, we have the whole regulatory framework required being a bank ourselves to enable a partner whether it's a bank, a neobank, payment company, ERP software to provide this as a value added service to their small business customers.

I'm asking you to pick your favorite baby here. So Sperrbank, Aggaras or Worldline, who do wanna tell the story on how they're using you?

Let's go with Sperrbank since they're one of our latest and it's really cool because they're a traditional bank.

And why would a traditional bank need your software technology? They already are a bank. They already have consumer deposits to lend out, why don't they just do it themselves?

As any business, banks need to focus, right? So considering the ticket sizes that our typical customer would ask for, which is around $20,000 That's the average loan. That's average loan size. So it's quite a small ticket size. We also get requests for all the way down to $500 to do like small investments or just bridge working capital challenges from these small businesses for a bank to onboard such a

customer is just as costly as onboarding a large corporation that's requiring several million. So it makes sense for them to focus on that group, right? And not build for these small micro businesses. Also, I think that what the bank or any traditional lender does is they look for some kind of collateral for the loan. And most of these small businesses lack that they don't own property, they don't own anything that could work as collateral. So we

have a different approach looking much more at cash flow to make sure that this business actually can repay the loan.

Okay, so there's a bank, they install Froda so that they can do higher volume of loans at lower average loan sizes, which used to be unprofitable for them. You are opening this line of business to them. Let's just in a hypothetical example, say you're installed in Nathan Latka Bank, right? And do my first $20,000 loan to a consumer. Is it to a consumer or

to Only a small businesses.

Okay, so I am Nathan Latka bank, I do a $20,000 loan to a brick and mortar grocery shop down the street. How do you make money on the 20,000?

There were just like any bank. So basically we have retail deposits. So we get deposits from the public and then we lend that money to the small business.

You do Froda because you're a bank, you're a regulated Exactly.

That enables us to act in all European markets. In many European markets, business lending is regulated. So you need a license. It makes it much easier for a bank to cooperate with another bank because we're under the same regulation. We have the same requirements. And I think back to your first question, it's also like, as a bank,

you have the ambition and the mission to help all the businesses in the society, right? You're part of that kind of infrastructure. And what we're doing with Spark Bank One is really complimenting them. So they take the larger ticket sizes, they take the larger corporations on their own balance sheet. We take care of the smallest. Once they grow and fit the bank's appetite, they can then stay with the bank and just continue to be served by

the bank and all the products that they have.

So Oliver, what's the right question for me to ask you to understand how fast or slow you're growing? Is it number of loans you're originated? Is it your net interest margin on an average loan? Is it a GMV going through your platform? Is it number of installed banks? What is the metric you care about?

So we look of course at the number of small businesses that we support. So far we've supported 150,000 small businesses and that's one of our super important KPIs. We have about 30,000,000 small businesses in Europe and we really want to try to reach as many as possible and serve as many as possible. In terms of growth, it's been a challenging macro the latest come of years, but we still had a growth of about

30% year on year. And I mean, we expect that as macro improves to grow much faster.

When you say 150,000 small businesses supported, you've done loans to 150,000 small businesses?

Yeah, we've supported 150,000 ideas.

So, some of the businesses has used us several times. What's that number in a dollar value?

I mean, the average loan size is $23,000 So yeah, you have to do the math. Current outstanding balance is about 500,000,000.

Dollars 23,000 average loan size times 150,000 small businesses funded is 3,450,000,000 funded life to date. And what is life to date? How many years is that? What date?

It's ten years. So first five years was very much growing and setting the fundamentals and growing with a direct business only in Sweden. The last five years or four years have been this embedded push where we've scaled outside of Sweden, scaling with partners and built this kind of enable or white label offering.

You said there's 500,000,000 of active loan tape today. Can I divide 500,000,000 by 23,000 each to about 21,800 outstanding loans today?

I live in shy of 20,000, I think it is actually.

How do you manage that? You know, private credit in The U. S. Is blowing up right now. I mean, you see Blue Owl limiting redemptions. You see Apollo KKR going crazy. You see Vista Equity launching a private credit fund to go after distressed private credit books. I don't know if you're seeing the same patterns in Europe, but are you seeing any sort of non accrual rate spikes on your outstanding capital balance and borrowers?

Due to macro and kind of a consumer squeeze on spending, our customers are struggling a bit and that affects us of course, in terms of a little bit higher default rates, but we're still doing, we're still profitable, we're still doing well. We have this nice growth, which we think will accelerate as macro improves.

The closest comp I have to this is when you go back and look at OnDeck pre COVID, they obviously were public. So we could see their, you know, default rates, their average gross yield, they're putting dollars out at and their net interest margin. You know, they were very comfortable and they could operate profitably with like a 10 to 15 default rate because the margin, what they're putting money out at was, you know, 35, 40, 45% sometimes, which look, you could argue it's expensive or not, but the point is no one else was lending to that market, right? So it's either 40% or nothing, right? It's a new product. How do you think about those numbers for at Froda?

I think it was important for us from the start and still is that we want to be a fair lender. We want to be able to offer the best possible terms. The average APR, just to put it into context on that is with us is 16%. So it's lower than some of the MCA players, but it's still a bit higher than the high street bank. Back to your point, Nathan, I mean, customers today, they would get

the no from the bank, right? So they have no...

Exactly. I

think that we are really the best alternative for them. And in many cases, the investments they do would give returns that are like threefold or tenfold. So although interest is a little bit higher, it makes total sense to do that investment.

And Oliver, don't know what the regulation is like in Europe but I know in The U. When you're a bank like this, you've got to have some historical cohort or vintage analysis so that you can use sort of CECL methodology to put together a go forward loss projection and allowance for bad debt. Know, some folks say we're gonna hold back 1.5% of all new originations for a future allowance for bad debt. Others are more aggressive, they say 5%. How do you think about that cushion for Froda?

It's the same in Europe. So we need to hold some buffer for losses and basically we take that loss upfront, right? So if we lend to a customer, we have to take cost for loss as soon as we do the payout. It's about three to 5%. What have actual sort of losses been?

Has it been like two, three, four, 5% on historical vintages?

Before this current macro squeeze, we were around like 3%, it's a little bit elevated now, but we project that we will go back to around the 3%, 3.5%, that's where we want to be. It's a higher risk appetite than the traditional bank, but it makes sense considering the segment that we're serving, we think that's a good kind of balanced level.

Yep, and how do you know that 16% average APR is the right and correct risk adjusted pricing for a new lender getting a $23,000 loan from you? What does your credit box look like?

I think we could probably charge more because just as you said, they don't find external financing elsewhere or at least it's not abundant. We have been coming back to kind of the vision of offering the best possible terms. We are kind of the cost driver or the price driver downwards here because we want to offer as good a loan as possible.

I know for example, if a software company has been around for ten years in business and has more than 7,000,000 of ARR, they're way less risky than a new AI startup with less than one year of history. So the pricing and the effect of APR is going to reflect that. I imagine you have some guidance like this in terms of Oh yeah, yeah, definitely.

So, I mean, from the start, the idea was to really use transaction data and other credit data points that we can get

to build machine learning algorithms, basically to find patterns and important data points to really score these small businesses as well as we can. I mean, what we've seen now with ten years of experience and a couple of 100,000 of businesses sharing data with us is that we can really leverage that large data set to find patterns that can enable

us to understand what's the risk in this business going forward. And that would set both the credit volume that we would offer. So the maximum credit line that we can offer and also pricing that we offer.

Yep. Tell us more about your history here, right? This stuff's not easy to get off the ground. You've got to obviously raise money to have a balance sheet lending then you're, it sounds like, you know, getting consumer deposits now because you're officially a bank but I'm just going obviously off Google here quickly. It looks like you've raised significant capital. Give us the capital story here. How have you funded the

We've raised 49,000,000 to date. We did our latest round last summer. That was the B series, of about 23,000,000.

So last year, 2025 was the 23,000,000 series B. When was the series A?

Two years before that.

Okay, so 2023 and how much was that for?

A little bit less than half to be around I would say.

$1,011,000,000, something like that. When you went out in 2025 and did the 23,000,000 series B, how was a bank like Froda valued? Was it a forward looking sort of discounted cash flow on future contracted interest revenues or what did it look like?

I mean, it's always been a bit of a challenge because as you said, we're a bank at the same time, we're a tech company, right? And do we get the tech valuation or do we get the bank valuation? I'd say we're in between, we got some of the kind of the tech valuation. We definitely didn't get like the 2021 valuations of tech companies.

I mean, those valuations were like 2030X of ARR, you were under a 20X multiple.

And then how much do you need really future funding or not really because now you have consumer deposits you can lend out with a spread.

Yeah, and we're profitable, right? So we still need our own equity, to a certain extent as we grow the portfolio.

How much? There's a coverage ratio you need and there's an advanced rate and then you got about your equities at 25% on every dollar?

No, it's about 11%. We are profitable today so we don't really need to raise money. If we were to raise, that's an option we're looking at. It's mainly to be able to scale quicker.

I take a $500,000,000 loan book today at an average APR of 16% before losses and servicing, etcetera, that would put top line revenue somewhere around $80,000,000 annually, Yeah, that's the ARR. And what profitability do you try and get to? 10% bottom line, 50, 20?

The ambition is about 10%.

Can you quantify the growth if you're around 80 ish million in run rate today? Where were you about a year

So last year we did about 57,000,000, something like that.

Oh, this is a crazy growth rate. Congratulations, man. That's amazing. I

mean, always want more, right? I would love it to be more than a 100% year on year, but.

How are you growing so quickly? We've got about two minutes left here, but how are you growing so quickly?

The strategic decision five years ago to go for like this embedded finance play or embedded lending play was really key. So it's enabled us to scale quicker both in terms of like the geographical reach instead of doing one country greenfield establishment. We've been able to scale into six new countries or seven currently building for France at

a much higher pace than we could do if we were doing everything on our own. I think also being like a one product company that we are, we only do SME credit. It makes sense to build your product into a platform where the small business is active and it's kind of continuously interacting with that platform whether it's an accounting software system or a bank makes sense to have a credit there, right?

I just can't believe that these banks are willing to give up $80,000,000 worth of revenue to you to come in and service their customers that they're not servicing. I mean, you're a genius negotiator.

But you also, I think it's also like we touched upon earlier, you need to do this tech investment and they can make more money elsewhere putting that money in that direction. But also it only works if you also change your risk appetite, right? If you keep the bank's risk appetite and build a fantastic product from a tech and UX perspective, you're still not gonna be able to serve the like 70% that we do. You would be

declining 90%, even though you have a nice tech product. You need to have the tech and the risk appetite and I think that's where we kind of can help the banks and other players.

Guys, are wrapping up here with Oliver. He is the Co Founder of Froda, a leading embedded finance provider and SME lender active in seven markets. If people wanna follow along with your story over the next twelve, twenty four months, where can they find you online?

So for the embedded part, please look up frodaembedded.com. You showed it there. That's where you find everything about our products. Please follow us on LinkedIn. Most of our stories are are posted there, so so happy to have more followers.

I mean, is an incredible story. Are they are serving a market that has historically been underserved. Frodaembeddedcom.. Oliver, thanks for taking us to the top. Thanks for having me. If you enjoyed that interview, you should click here to subscribe to the channel so you don't miss new interviews every Tuesday. If you've got some free time and wanna listen to the next interview right now, click right here. Lastly, subscribe wherever you get your podcasts. We're on Spotify, Apple Podcasts, and here on YouTube.