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Kabbage Makes Opening a Business Line of Credit Quick and Easy
Many small business owners rely on loans and lines of credit to help them manage cash flow and expand their operations. But traditional small-business loans can take weeks or months to secure and may have stringent credit requirements.
Kabbage, an online business lender, uses an automated system to review applications and doesn’t have a strict credit-score requirement. You can apply for a line of credit for up to $100,000 in minutes and you could get money into your account within days.
The annual percentage rate (APR) on a loan from Kabbage could be much higher than what you might receive borrowing through one of the Small Business Administration (SBA) loan programs, but the speed and qualifications make it an option worth considering. Plus, you can repay Kabbage loans in monthly installments, as opposed to the daily or weekly requirement that some business lenders impose.
We spoke to Jon Parise, head of customer and partner marketing at Kabbage, and asked about the company’s history, products and how business can best use a line of credit.
Louis DeNicola: Can you explain what Kabbage is for those who aren’t familiar with the company?
Jon Parise: Put simply, Kabbage helps small businesses get the funding they need to grow
We've developed a simple way for small businesses to ask for funding. Using our online application or mobile app, business owners can link their information, which allows us to quickly review their performance. The whole process can take just a matter of minutes, and customers can be approved very quickly for lines of credit of up to $100,000. They can withdraw from the credit line whenever they need extra capital.
What changed to allow a company like Kabbage to flourish?
The company started lending in 2011, and I think what our founders realized was that there was probably a better way for small businesses to apply for funding. Many companies like eBay were offering automated access to data via APIs. Our founders realized that we could use this data to allow lenders to make better and faster decisions, and greatly improve the loan application experience in the process.
Many of our customers have found the bank experience to be rather negative. It was fairly time consuming and sometimes involved a lot of paperwork. Ultimately, a lot of them have gotten rejected by banks because their loan wasn’t profitable enough for the bank.
Our founders realized that thanks to the data available online, there was a better process. A lot of these business owners manage their businesses online, so Kabbage was able to leverage online data and look at things beyond an income statement or three years of tax records, such as accounting data, online sales, or shipping information.
We developed a platform that can look at all this information very quickly and provide an automated decision in as little as minutes.
What do you look for when a business owner requests a loan? What might a business owner need to connect to give you that data?
We can connect to a wide range of data sources. We look at things like your business checking account, which allows us to see your latest business performance in a fraction of the time it would take a bank to review old tax returns. Then we look at other channels like PayPal, eBay, Amazon, QuickBooks, and even social media accounts.
All of these things help paint a better picture of the performance of the business, and all that information allows us to make a well-informed decision both when a customer applies and as their business grows.
What are you looking for from a business’s social media accounts? Do you manually review their posts?
The whole point of Kabbage is to use an automated system to quickly and seamlessly let small business owner apply for credit. There’s nothing manual about it.
We're looking at a range of things, such as the number of followers and the business’s responses to questions. We can see the type of responses, find out if small businesses are responding to customers in a timely manner, and get a sense with how they’re interacting with their customers. We are able to take that into account and make a more well-informed decision about the health of that business.
Do you use any of the traditional credit scores, either personal or business, in the underwriting?
Yes, we do use the personal FICO score, but we don't set a minimum score. We look at that in conjunction with the performance of the business.
Kabbage isn't the only online small business lender. What differentiates you from other online lenders?
I think there are a couple of things.
One is the automated process.
We're the only company that offers a 100 percent automated experience. In fact, 95 percent of the businesses that apply have a fully automated process. There's almost no time between when they hit submit on the application and find out a decision.
Our fees also differentiate us. We have no origination fees, and we don't have any holding fees on the accounts. If you qualify with us and get approved for a credit line, those funds are there when you want to use them. We're not taking them away, and we're not charging you any fees just to have them.
We're also the only lender that offers a fully mobile lending experience. A customer can download our mobile app, complete the application, qualify, access funds and send those funds to one of their accounts all within the mobile app. That's a huge differentiator for us and it's something that we're pretty proud of, especially as the world goes more and more mobile.
How quickly can they get money in their account if they’re approved?
We don't send the money without you requesting it. When you qualify for your line of credit and you request funds, there are a couple of things you can do.
We allow you transfer funds immediately into your business’s PayPal account.
If you transfer funds to your checking account, it can take one to three days for those funds to land in your account.
Are there any basic eligibility requirements for a line of credit?
The two basic requirements are:
- You have to have been in business for at least a year.
- You had annual revenue of at least $50,000 or made at least $4,2000 in revenue each month for the last three months.
How have you seen businesses effectively use their line of credit?
Generally speaking, the biggest industries for us are business services: marketing companies, accounting firms, and other professional services. Retail businesses are another big group for us, as are construction companies and contractors. A lot of those companies operate on larger contracts, and they'll have net-90 or 120-day payment terms. They do the work now, but it’ll be several months before they get paid.
For us, it works really well because we provide six- or 12-month loans as part of our product offering. Our customers can close a deal and know exactly when they're going to get paid. They can figure out what the return on investment (ROI) is going to be with their financing costs and work that into their business plan.
Can you explain how Kabbage’s products work and the fees that business owners may need to pay?
When you take a loan, you can choose either a six or 12-month loan term. You'll pay an equal portion of the principal plus a percentage of your withdrawal amount. There are no hidden fees and everything is very clearly laid out for the customer before they withdraw funds.
And there are no pre-payment penalties. If you have a six-month loan and pay it off by month three, all the remaining fees get waived.
You can also use the loan calculator tool to estimate the cost of a Kabbage loan.
When should a small business owner consider a loan from a different lender?
We offer lines of credit for up to $100,000 and have either six or 12-month repayment terms. As Kabbage continues to grow, we plan to add new products. But as of right now, if you need more than $100,000 or if you need more than 12 months to repay that loan, then you may want to look elsewhere.
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