Toronto-based fintech company Borrowell has raised $25 million in equity from a slate of new and existing investors in a deal to secure its acquisition of Refresh, a Kelowna, B.C.-based firm that helps customers improve their credit ratings. 

The round added several new investors to the seven-year-old company’s cap table, including BDC Capital, Kensington Capital Partners, iA Financial Group and Chicago-based Impact Engine. Existing investors Portag3 Ventures, White Star Capital, Equitable Bank and National Bank’s NAventures also participated in the round. 

The funding—which brings Borrowell’s total equity financing to $55 million—comes nearly two years after the firm’s US$20-million Series B, and two months since it reached an agreement to purchase Refresh. 

Andrew Graham, co-founder and CEO of Borrowell, told The Logic the funding round and acquisition were mutually dependent on each other, and that coordinating favourable terms for everyone involved was a balancing act. “It’s complex enough to do a fundraise on its own, but to do it alongside an acquisition is doubly complicated,” said Graham. 

Talks to raise money for the buyout began last spring and ramped up in the fall, with the parties reaching an agreement late last year. The companies are not disclosing the terms of the deal, but Graham said the cost to acquire Refresh was less than the $25 million it raised in the process.

For several years prior to buying the B.C.-based company, Borrowell—which offers free credit scores and financial literacy tools—had partnered with Refresh by directing its customers to use the startup’s credit-improvement services and taking a fee for referrals. “That model was effectively limiting Refresh’s growth because it takes capital to spend those marketing dollars, whether it’s with Borrowell or with someone else,” said Graham. “We found that there were more people that could use their product than they could afford to advertise to.” For Borrowell, the acquisition instantly doubles its revenue and headcount, which now sits at about 130 employees.  

Refresh is Borrowell’s first acquisition, but likely not its last, said Graham. “This acquisition shows that it is part of our growth strategy,” he said. “We’ve built really strong relationships with over 1.5 million people who use Borrowell. The question we’re asking ourselves is, ‘What are other problems we need to solve for our customers’? Some of those solutions we’ll build, some of those solutions we’ll partner on and some of them we’ll acquire.”

Borrowell and Refresh are part of a growing niche in the fintech space that’s aiming to help increase upward financial mobility for customers who are low-income or stuck in a position where they can’t build their credit through traditional means like using a credit card. “A lot of impact investors, when they think about financial inclusion, they think about emerging economies, but we think that in a lot of developed markets, there are a lot of customers and households that aren’t being served by traditional services because those companies can’t figure out a way to profitably serve them,” said Priya Parrish, managing partner at Impact Engine. “In order to profitably serve customers, they have to charge high interest rates and it doesn’t end up helping them get out of the debt cycle. That’s why you end up with these fintech companies that can profitably serve customers, but not do well by them.” 

Parrish—whose firm has also invested in Climb Credit, a New York-based startup that provides loans to students, regardless of customers’ credit status—said having a suite of services to help customers at different stages of their financial growth lets Borrowell keep rates low for those in the most dire positions, and also incentivizes the company to help clients get out of debt. “By helping them improve their credit, that doesn’t mean they’re no longer your customer,” she said. 

As COVID-19 exacerbates wealth inequality, Parrish said access to credit is a key factor in determining who is becoming better or worse off. “You can have savings, but you also have to have access to credit,” she said. “I think it’s allowing companies like Borrowell to make their value proposition even more evident.” 

Graham said logins to Borrowell’s site and mobile app have increased substantially during the pandemic, as consumers seek more information about their finances amid sweeping economic uncertainty. To respond to the increased interest, the company began offering credit-score updates weekly, rather than monthly. Integrating Refresh into its platform could be particularly helpful to customers who’ve struggled financially during the pandemic. “The average Refresh customer sees a 106-point credit-score increase over the first seven to 12 months, so we think that’s a really positive outcome,” said Graham. 

While Refresh’s services will be rolled into Borrowell’s offering, Graham said the company is still “working through the details of what we’ll do with the brands.” Refresh’s Kelowna-based staff will stay in the B.C. city. 

Along with integrating Refresh into the Borrowell suite of services, Graham said the company plans to hire about 20 more employees in the next year. Despite the deep bench of investors and a rush of IPOs in the sector, the CEO said he doesn’t feel pressure to go public any time soon. “We’re very focused on making a strong joint company, though it is exciting to see the strong appetite in the public markets for fintech companies.”