Kabbage is an online provider of cash advances for small businesses. In this article, we’ll review Kabbage business loans and help you figure out whether or not you should get a loan from them. We’ve gone pretty in-depth into reviewing Kabbage’s processes and policies, so read on…
Kabbage Loans Review
Kabbage accepts both brick-and-mortar and online businesses with little to no assets and doesn’t base approval on credit scores. Kabbage’s lending platform is fully automated and able to assess the creditworthiness of the smallest of companies. Even micro-companies that operate exclusively on platforms like eBay are welcome.
One of the primary sources of friction with small businesses is a lack of cash flow. Cash flow is the lifeblood of any business, but this is particularly true for small and micro-businesses. Small companies usually don’t have large cash reserves or long-standing credit relationships with providers. So when a client doesn’t pay on time, business is slow, or they need to increase their inventory or staff, finding cash is a problem. What makes things worse is that traditional lenders, banks, and credit unions, don’t even consider small companies, particularly if their credit is sketchy and they don’t have the assets to back a loan. Even when they do, the application process can take weeks. Kabbage solves this source of friction by providing businesses with a fast pool of cash they can dip into (or not) whenever needed.
How Does Kabbage Loans Work?
Unlike traditional lenders, Kabbage will consider all businesses, regardless of their credit score. In principle, as long as you can prove your company has been in business for a year and that it generates more than $1,000 in revenue a week, you can qualify for a line of credit. Once a company gets approved for a line of credit, it works like a credit card. Borrowers can draw—up to the credit limit— as much or as little they need, as often as once a day. Borrowers only pay interest on the amount they withdraw.
Kabbage has a fast and easy to complete application process. If you have all the necessary information (more on that later), you can complete the entire process in as little as six minutes. It all depends on how fast you can type. Kabbage’s underwriting platform can then link with regular business accounts and the major payment processing services, such as Amazon, eBay, Etsy, Paypal, Sage, Square, Intuit QuickBooks, Authorize.Net, Yahoo, and Xero. With this live data, Kabbage determines on the spot whether you meet its eligibility criteria and how much money you can afford to borrow. If you choose the right method (such as PayPal), Kabbage can deposit your funds within seconds of completing your application. Other funding methods, such as a bank transfer, may take a couple of days to complete.
The catch is that Kabbage’s interest rates are not cheap. They are very competitive when compared to the other options available to small business, but they’re certainly not cheap.
So is Kabbage a good deal for companies looking for a business loan?
It can be, particularly if you fit Kabbage’s target audience. However, if you’re an established business with an excellent credit history and plenty of assets on your balance sheet, you can get better terms from a bank, a prime online lender, or a business credit card. However, you will probably have to wait for a little to access your cash if you use those methods. Speed and simplicity are the big advantages Kabbage has over other sources of credit.
This review will take an in-depth and unbiased look at the rates and terms offered by Kabbage. Then you can decide whether it is a good option for your business. We will also take a detailed, step-by-step look at Kabbage’s application process; so you know what to expect if you do decide to apply.
What Types Of Business Should Apply For A Kabbage Loan?
Small dollar loans tend to be unprofitable for traditional lenders with their expensive overheads and labor-intensive underwriting procedures. While medium-sized and large companies have no problems finding a loan, small businesses have it much harder. Kabbage targets this funding gap by lending to small companies and micro-businesses, particularly those that work with online banking and online payment platforms.
To qualify for a Kabbage loan a business must:
- Generate over $50,000 a year
- Have been in business for at least one year
Those are the minimum requirements. Kabbage then looks at a wide variety of factors, such as business transactions, sales volume, ratings on social networks, and credit history to determine the borrower’s overall credit risk. A business’s credit score will not determine whether its line of credit is approved, but it will affect what interest rate it pays on cash advances.
What Are Kabbage’s Rates and Terms for Small Businesses?
- Kabbage offers lines of credit ranging from $2,000 to $100,000. Loans with a 12-month repayment term have a minimum of $5,000.
- The interest fee ranges between 1.5% and 12% of the loan amount depending on the credit history and business performance data of the borrower. The actual interest fee varies depending on the credit profile of borrowers and how long they take to repay the loan.
- To illustrate, if a borrower takes six months to repay a $10,000 with a 12% interest fee, the equivalent APR would be 40% APR. The same loan with a 12-month term would have a 21.45% APR.
- Borrowers can repay their loans in either six or twelve months, but there are no early payment fees. The total loan amount is divided into either six or twelve payments depending on the length of the term.
- Check Kabbage’s profile on SuperMoney’s for the latest rates and terms.
In 2008, Rob Frohwein–now CEO of Kabbage—noticed the growth of small businesses using online marketplaces, such as eBay, and using online payment methods, such as PayPal. These companies had little in the way of assets, and even successful businesses struggled to meet the credit requirements of traditional lenders. Frohwein also realized that online marketplace transactions could be accessed using software that was already in place. This level of real-time access to a business’ accounts is useful to a lender trying to assess the financial health and creditworthiness of a borrower, particularly when it’s a small business that operates mainly online.
Frohwein shared his business idea with Kathryn Petralia, Vice President of Strategy for Revolution Money, and Marc Gorlin, a veteran entrepreneur with contacts in venture capital. By 2009, Frohwein, Petralia and Gorlin founded Kabbage.
As of January 2015, Kabbage has processed over $1 billion in loans to more than 100,000 small businesses. All Kabbage business loans are issued by Celtic Bank, an industrial bank based in Utah. Kabbage has its headquarters in Atlanta, Georgia, and has an A+ rating with the BBB.
As of October 2015, Kabbage has gone through five rounds of venture funding and has received a total of $238.65 million in venture capital. Now, Kabbage has started to invest its capital in the loans. Kabbage also owns Karrot, the consumer lending branch of the company that offers loans of up to $35,000 at rates ranging from 6.44% to 29.27% APR.
What Is Kabbage’s Application Process Like?
Kabbage’s application process is as simple as it gets in business loans. It’s where Kabbage has an edge on traditional lenders with their long forms and weeks of waiting to get a response. With Kabbage, there are no faxes, no scanning, no hassle. Here is a breakdown of Kabbage’s loan application workflow.
1. Basic Business Information
Submit your company name, its ownership structure (whether it’s a sole proprietorship, partnership or a limited liability corporation), the business’s address, and the date it was established.
2. Automatic Business Review
Select the bank or payment service you use to process your business transactions. Start with the service you use to transfer the most revenue. If you use more than one service, you can add them later. The more revenue you can prove, the higher your line of credit will be.
3. Business Review Authorization
Authorize Kabbage to review your commercial transactions and login to the payment service you selected.
4. Personal Information
Provide your full name, address, phone number, and Social Security Number. Kabbage uses this to confirm your identity and to perform a soft pull on your credit.
5. Check Your Line Of Credit
Kabbage provides an immediate approval (or denial) of credit. If you are successful, you will get to see how much cash you have available in your line of credit.
6. Select Term And Rates
Every time you withdraw money from your line of credit (you can do it up to once a day) choose what term you want (six or twelve months), and where you would like the funds transferred. The length of the loan will affect the APR of the loan.
Kabbage Loans Review & Summary
Kabbage’s cash advances are an excellent tool for small business that can’t qualify for traditional loans, prime online loans, or a low-interest business credit card. Compared to the other options available to small businesses without excellent credit, Kabbage is a great deal. Even companies that could potentially qualify for a lower interest rate may choose to go with Kabbage because of how easy and fast it is to get cash.