Kabbage is slang for money loans that don’t need collateral.
It may be $400 to pay for an unscheduled repair or $40,000 to launch a go-to-market campaign, but many small businesses find their plans are stymied by credit checks and red tape. The reality is many small business owners tend to have credit scores too low for most banks to touch.
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Kathryn Petralia, co-founder and COO of Kabbage said traditional money lending practices based on credit scores put many small businesses at a disadvantage. She said small business owners are “highly leveraged” because they have put their homes on the line to operate their business. This, however, deflates their credit rating, she said in an interview with the AmericanBanker.com
The Atlanta-based startup Kabbage, specializes in providing working capital for startups (especially online merchants) using a underwriting system based on online data to determine which companies are worth funding.
Kabbage developed a Web-based platform for monitoring and analyzing small business sales data from Amazon, eBay and other online marketplaces in real time. Recently, an agreement with UPS also allows them to augment this data with shipping information.
“Kabbage provides advances to grow a business in just 5-10 minutes,” according to Kabbage founder and CEO Rob Frohwein.
“It is designed as a quick fix for companies that need money to buy inventory, ramp up personnel, purchase equipment and more,” he said.
The process is very simple:
- A small business fills out an application online and authenticate the marketplaces at which they sell (such as eBay)
- The business authorizes those marketplaces to share data about their sales with Kabbage. The business also authorizes PayPal to share information about and access to their PayPal account
- An automated decision engine crunches the numbers. If the business qualifies, Kabbage puts cash in an amount ranging from $400 to $40,000 in the PayPal account
- Kabbage also uses the automated clearinghouse to handle payments for customers who sell on Amazon
The loans are for six months maximum. Rates vary between three to seven per cent for 30-day loans to 10-80 per cent for six month loans.
The size of the loan can increase with more data provided by the merchant from more online accounts.
Kabbage can offer small advances because its acquisition costs are low and its process is automated.