Kabbage began operations in 2009, and is currently headquartered in Atlanta, Georgia with additional US-based offices in New York and California. Kabbage also has an office in India. It is clearly one of the more well-known lenders in the alternative lending space. Kabbage states on its website that it is not a “lender,” per se, but rather it is a technology company which acts as the facilitator between a borrower and a lender. They review the data that is self-provided by the borrower and will make a credit decision based on that information. If approved, the lender, in this case, Celtic Bank of Utah, steps in and provides the funds. Kabbage will then oversee the loan in its entirety.
Kabbage is popular largely because of its convenience (the application process is primarily online) and the fast turnaround for a credit decision and actual funding, as well as for its comparatively relaxed borrowing criteria. Kabbage claims that in some cases, they can fund on the same day an application is approved, with the approval process taking mere “minutes.”
Applicants for a line of credit of less than $100,000 are only required to have a year in business, and annual revenues of $50,000. For amounts up to $250,000, the borrower should have been in business for at least three years, with annual revenues of $500,000. Kabbage encourages borrowers to link their partner accounts, i.e. eBay, PayPal, Amazon, Chase Bank, etc., because the better the evidence of your income and revenue, the higher the amount that Kabbage might be able to offer.
The price a borrower will pay for ease and convenience is the trade-off, because Kabbage's fees are among the highest in the industry. Though they tout the fact that there is no prepayment penalty, the front-loaded fees mean any savings is likely to be minimal, unless you can prepay within the first month or so after you draw.
The loan offerings from Kabbage are very basic; it's a line of credit with a short-term monthly repayment plan. A borrower can borrow any or all of the approved loan amount at any time, which makes it a great option when the unexpected occurs. Because of the short-term nature of the loan (maximum amount of time to repay is 12 months), a borrower should consider this loan best for working capital needs and not, say, for things like major equipment purchases or renovations (a longer-term loan would be a better fit, then). When you do need your funds, Kabbage can deposit the proceeds to your checking account, or via PayPal. They also offer a spending card, which can be used just like any debit or credit card.
Kabbage only offers one type of funding for small business owners and that is a line of credit which comes with either a 6-month or a 12-month repayment option.
|Borrowing Fee||Effective APRs||LoanTerms||Collateral Required|
|Line of Credit 6 months||$2,000||$250,000||1.5% to 10% of initial amount borrowed||24% to 99%||6 equal payments of principal plus monthly fee.||Personal Guaranty required: Lender may file UCC-1 lien|
|Line of Credit 12 months||$10,000||$250,000||1.5% to 10% of initial amount borrowed||24% to 99%||12 equal payments of principal plus monthly fee.||Personal Guaranty required: Lender may file UCC-1 lien|
It is a line of credit in the sense that a borrower is permitted to draw as much or as little as he wants, up to the maximum amount available. Draws under the maximum amount are repaid with a straight-line repayment of principal (i.e. either six fixed principal payments or twelve) plus the monthly fee. The monthly fee is “front-loaded” so that it is larger in the first two (or six) months of repayment (depending on whether the repayment period is six or twelve months); thereafter, the fee is reduced for the remainder of the loan period.
Kabbage does allow the borrower to have more than one loan at any given time, up to the maximum approved loan amount. For the convenience of the borrower who has multiple loans, the minimum amount due on each loan is combined into a single payment and withdrawn automatically monthly from the designated checking account. Amounts that are repaid on the loan become available to the borrower, in some cases immediately, but generally about seven calendar days after payment.
If withdrawing funds via PayPal or your checking account, there is a minimum draw requirement of $500. If the draw is through the Kabbage Card, then there is no minimum draw.
Let's first take a look at what is “simple” about fees and rates on a loan from Kabbage. There are no extra fees; there is no origination fee, draw fee, document fee, subscription or activity fee, or even a prepayment penalty (“officially,” there is no prepayment penalty). Where there “might” be an additional fee, according to the Kabbage website, is if one of its third-party partners charges a fee (which can be up to 1.5% per month).
Of course, Kabbage wants its borrowers to repay on a timely basis, but they claim they are somewhat flexible. If the borrower knows it won't be able to make a payment, they encourage you to contact them to discuss your options. Kabbage will charge a late fee if a payment is not made within four days of the payment due date; that fee will vary depending upon the amount due and will range from $10 to $100.
Kabbage does have a slightly unorthodox way of charging interest (which they classify instead as a monthly fee) which, on the face of it, looks quite appealing. With fees between 3% and 10%, that seems quite reasonable. However, when you delve a little deeper, you'll see that the applicable rates are really more exorbitant than first thought. How high can the fees get? The answer is pretty high; but you as the borrower can get a better feel for that by using the very handy loan calculator that Kabbage provides right on their website.
Take a look at the example below which is a “worst case scenario” in terms of the applicable rate. A $10,000 line of credit draw, repaid over a period of 12 months at the monthly rate of 10% will mean at the end of the 12 month period you will have repaid $16,750. Of the $6,750 which is the total of the monthly fee, $6,000 of that was assessed in the first six months (which is why we say the fees are “front loaded).
The Kabbage loan calculator does let you play with the numbers a bit, giving you an idea what your savings might be if you can repay earlier. However, because the higher monthly fees are assessed in the first few months of the loan (first two months of the 6-month loan and first six months of a 12-month loan), your savings may not be that significant. The bottom line is that your “savings” are only decent if you can repay the loan within the first month or two.
Is a loan from Kabbage worth it? Kabbage provides its borrowers with an ROI calculator (Return on Investment) so you can determine what kind of profit you will garner from the investment you intend to make with your Kabbage loan.
Kabbage's requirements for its borrowers are relatively straightforward. For a loan which is less than $150,000, the borrower should have annual revenues of at least $50,000. The business should also have been in operation for one year.
For loans in excess of $150,000 and up to $250,000, the annual revenue threshold rises to $500,000, with a business in operation for three years. Additionally, the borrower's ability to link its bookkeeping and bank accounts also play in the borrower's favor. Kabbage will look at your history with PayPal, Amazon, eBay, QuickBooks, Xero, and others in an effort to obtain its best offer. Kabbage puts less credence into the business owner's credit score than it does the company's financial stability which is why they have no minimum FICO score requirement.
The online process for applying for a loan through Kabbage begins with your answers to some basic questions about your business and yourself (as the owner). At a minimum, that information will include your name and address, email address, phone numbers, social security number and federal tax ID number. From there, Kabbage will request access (read-only) to your bank account and/or your accounting software, as well as other key data and vendor providers, which can help the Kabbage underwriters make the best decision for you. Kabbage does hard pull your credit history while reviewing your application, and though they do not have a hard and fast FICO score minimum, they will review the data with an eye to determining their risk as well as verifying your identity. So long as Kabbage does not have to jump through hoops to verify your data, you should have a response within a short time. If they need additional information, that will delay the processing time.
Upon approval, Kabbage will work with you to determine the best way to get the funds to you (i.e. through your bank account, PayPal or through use of their Kabbage card). Though a rejection of the loan application might be disappointing, Kabbage says they will intermittently review your information with a view to getting you an approval at a later date.
Kabbage customer support is available via phone during regular business hours, as well as via email and all standard social media channels – Facebook, Instagram, Twitter, and LinkedIn. The company makes every effort to attempt to all inquiries within 24 hours. The website also has a short FAQ page that explains more about how the company was founded than its policies, but will give borrowers a better understanding of who they are doing business with.
Kabbage gets an A+ rating from the Better Business Bureau; with 29 reviews, it gets slightly better than a 3-star rating. It has had 53 customer complaints since 2015, with many recent criticisms over bait-and-switch tactics, changing the terms without notice to the customer, downgrading the credit limits of customers based on geography (for example, the zip codes which were impacted by a recent hurricane) despite the fact that some customers experienced an increase in business and revenues after.
On the website Trustpilot, Kabbage has nearly 5,000 reviews, with 94% of respondents giving them a ranking of great or higher; overall, Kabbage has a 5-star reputation on Trustpilot. Of the 5-star reviews, one can't help but notice that many of the reviews have a similar “theme;” generally along the lines of “easy process, very quick,” and “simple application, very fast,” and “very easy and expedient service.” Despite TrustPilot’s reliability, we couldn’t help but wonder why the reviews were so remarkably similar.
Of the poor reviews, the majority have said that customer service was lacking, with some representatives seemingly disinterested in providing assistance or else being rude. Others claimed that the terms were changed after an offer was made, while others pointed out that funding took longer than expected. The high interest rates charged by Kabbage was also mentioned numerous times.
To give credit where due, there are quite a number of “verified orders” where Kabbage has invited the respondent to provide a review on Trustpilot. In the cases of the 1-star reviews, about half the time there was a response from someone at Kabbage but it seemed largely cut and paste, rather than a personal address of the situation. Specific complaints about problems with an application or an account were often not addressed by anyone from Kabbage.
For a small business owner looking to cover unexpected expenses or for true short-term working capital, the Kabbage line of credit is a good option, albeit a possibly very expensive one. The front-loaded fees and the short duration of the repayments mean that there isn't a lot of incentive for an early repayment of the loan. Moreover, the monthly rates are merely an attractive facade; an APR comparison will show what may very well be the ugly truth, which is that Kabbage’s fees are quite high compared to other alternative lenders.
In the alternative lending space, Kabbage gets high marks for getting the approval and funding process down to a science with very quick turnaround for most of its applicants. The relatively relaxed borrower requirements are ideal for a borrower with an “iffy” credit history. Having said that, it is probably still not a bad idea to explore all other options before signing on the dotted line with Kabbage, as a better deal may yet be had, even in spite of a borrower's obstacles to traditional lending.