As everyone knows by now, starting a business is really an enormous venture requiring lots of preparation and research. But aside from that, more often than not, it also requires significant amount of money to serve as capital. And this is where most new entrepreneurs encounter their first major problem – raising funds. This is what online lending company Kabbage aims to address. The company aims to provide new entrepreneurs and small business owners a fast and easy way to obtain loans and additional funding that are otherwise harder to get from other funding institutions like banks. But is it any good? Read on to find out.

What is Kabbage?

Kabbage is an online lending platform that caters to first-time business owners and small business entrepreneurs. According to its website, it provides a variety of financing options and business loans, ranging from initial capital requirements to equipment and inventory funding. It has been in operation since 2009, and according to their financial report, it has already approved a total loan amount of $4 billion to more than 100,000 small businesses.

Below are some of the loan options they offer:

• Unsecured Small Business Loans (lines of credit, working capital, inventory loans, etc.)
• Secured Small Business Loans (equipment loans, SBA loans, etc.)
• Industry-Specific Loans (construction, beauty salons, trucking, etc.)
• Minority Loans(business loans for women, veterans, and more)

Kabbage also offers invoice financing for small business. This is a service wherein a client can issue an invoice through Kabbage, and the customer or client you sent the invoice to can apply for financing options from Kabbage to pay off the amount of the invoice you issued – all at no additional cost. This gives your customers financial flexibility while assuring that you get paid on time.

What is the application process?

Kabbage is not the first financing company to offer an online approval process. But other competitors usually have a complicated application process that takes a lot of time. Kabbage, in contrast, is positioning itself as one of the fastest in terms of qualifying and approving loan requests. Kabbage says in their website that you can have access to additional funds in minutes, and various online reviews of clients that have availed their services agree with this.

To apply for one of Kabbage’s loan packages, you will have to fill out an online form or facilitate the application over the phone. Kabbage does not require paperwork. Rather, you will need to give them your online banking information and other online financial accounts you may have (e.g. PayPal). Kabbage will partner with them to assess your eligibility (should you be approved for a business loan, monthly payments will also be deducted from one of your online bank accounts.) Depending on the kind of business you have and the amount you are asking for, Kabbage may ask you about your current income information.

The good thing about Kabbage is that, according to their website, you will already know if you are qualified or not in just 10 minutes. You also do not need to pay anything upfront for the assessment, and you are not required to avail their services if you find that their offer is not within your budget.

How much can I get and what are the terms?

Considering that Kabbage welcomes clients who are mostly new business owners, it has a rather enticing loan package. Applicants can avail up to $250,000, depending on a number of business and financial factors.

As for the terms, Kabbage does not offer an annual percentage rate (APR) model that banks and other lending institutions usually use to compute for premium payments and interest rates. Rather, it charges a varying monthly fee for a line of credit. Kabbage charges a monthly fee between 1.5% to 10%, and clients can apply for a loan with either six-month or 12-month loan terms. The monthly fees are not fixed, and are skewed towards a bigger payment amount in the first few months.

A sample computation would be as follows: If you applied for a loan amounting to $50,000 loan with a payment term of six months, you would have to pay $10,333 for the first two months (a combination of principal payment and fees), and $8,333 for the rest of the remaining four months. At the end of the term, you would have paid a total of $6,000 in fees for a $50,000 loan.

Another advantage Kabbage is offers is that they do not charge any pre-payment fees. So if at any point during the term you were able to acquire a windfall or a huge surge in sales in your business, you can pay off the entire loan amount without any additional charges or fees.

Who is eligible?

Unlike most banks and other lending and financing institutions, Kabbage only has basic requirements in order for clients to become eligible for loan application. The first one is you need to have an established and registered business that has been in operation for at least a year. Your business should also have a yearly income of at least $50,000, but they will consider those that have earned at least $4,500 per month in the last three months of operation prior to the loan application.

What are the chances of getting approved?

The reason Kabbage has been very compelling for small businesses is that owners with bad credit scores can still be approved a loan package. Still, the probability of approval and the rates of the monthly fees are dependent heavily on your current financial situation. But if you meet most of the eligibility requirements mentioned above then you have a high chance of approval.

Pros and Cons of Kabbage

Pros

Speed and convenience

Knowing whether your loan application has been approved in mere minutes is certainly a boon for business owners who are constantly looking for funding options. And once approved, you can already use the funds the same day, making it available to be used in your business. This is advantageous for small businesses who really need to get funding fast to satisfy demand, make modest expansions, or increase its number of personnel.

This degree of convenience becomes even more compelling when compared to traditional funding vehicles such as banks and lending companies, which typically take anywhere from a few weeks to a couple of months to process loan applications that, in the end, can actually be declined just the same.

You can also do all your transactions either through their website or their mobile app, which adds another level of speed and convenience for clients because you can access your account details practically at any time and anywhere you might be.

No upfront fees

Kabbage will not charge you any amount until you start using your approved loan or business line of credit. There are no processing or application fees, unlike some banks and credit companies which usually charge fees upfront that cannot be refunded even if the application gets rejected.

Reliability and trustworthiness

Kabbage is a well-known brand and company in the industry, and is generally known for its reliability. You would not need to worry whether you will receive the funds once your loan application is approved. In fact, back in 2015, it was even named as one of Forbes’ 100 Most Promising Companies, coming in at number 63 on the list. This reinforces the company’s reputation and gives clients confidence in using their platform.

Their loan computations and loan terms also offer a transparent payment scheme. The fees are laid out clearly, so you can budget accordingly without fear of surprise costs or hidden charges. They also offer a business loan calculator in their website so you can see the different fee ranges at different loan amounts.

Unsecured loans

Kabbage offers unsecured loans together with their secured loans options, which is a big advantage to new business owners who do not have the property yet to declare as collateral. This allows them to acquire the necessary items necessary to grow their businesses, which can be used later on as collateral for bigger loan amounts.

Bad credit scores do not make clients ineligible

Those who have bad credit scores can still avail a Kabbage credit line provided that their current financial situation is deemed good by Kabbage. This provides entrepreneurs who may just have hit a rough patch in the past to continue to grow their business and recover their financial losses, unlike banks and other institutions that immediately close their doors to those who have bad credit scores.

Good customer service

Lending services typically do not have good review scores, as many borrowers complain of poor customer service. Kabbage, fortunately, is among the outliers, having earned an A+ rating at Better Business Bureau (BBB) and a 9.2 rating on Trustpilot (based on over 2,000 reviews) which is no easy feat, especially for a lending company.

Cons

High rates

While it is indeed easy and convenient to avail a loan package from Kabbage, the trade-off is their relatively high rates of fees. Kabbage advertises that their monthly fees range from 1% to 10%. But when computed under more traditional terms, these figures equate to 24% to 99% annual percentage rates, which are really on the high side when comparing it against traditional business loans.

Also, the way the fees are structured means that you have to pay a higher amount in the first few months. If your business is the kind that takes time to pick up sales, the higher monthly payments can be a significant blow to your cash flow. So it is imperative to have a very detailed financial computation that includes the high fees of Kabbage. There’s also no incentive to pay off the entire loan amount early, as most of the additional fees would have been paid after the first few months.

Short terms

Short loan terms can be an advantage to some who want to pay early, but most business owners want a longer term so they could have the time to really improve their business and wait for their sales to pick up. This can also be disadvantageous should there be unforeseen events (accidents, medical issues) that occur, because you will always have to allot a significant amount of your income for the high monthly payments.

Not practical for large loans

Because of the aforementioned high rates and short terms, loan packages offered by Kabbage can be impractical for large loans intended for costly purchases such as machinery, properties, and others. Traditional loan options such as banks can be more ideal in these situations because while they may indeed be difficult to obtain and a hassle to facilitate, they still offer significantly lower fee rates for longer term agreements, which can be typically stretched into several years.

Final thoughts

In the end, Kabbage offers very compelling loan options coupled with a highly-convenient, fast, and ultra-modern process. It gives small business owners and entrepreneurs a fast and easy way to avail funds that would have been otherwise inaccessible. All these advantages do come at a cost though, and the costs are indeed high. The viability of Kabbage as your go-to funding company will depend on the needs and current financial situation of your company. Do you need fast cash to meet increasing demand and maintain growth of your company? Then Kabbage is certainly a viable option. But if you are planning for a more ambitious and more expensive expansion, then Kabbage’s high rates and short terms may have the possibility to impede your cash flow and leave you in a worse financial situation than you began with in the long run.

As with other services and products, make sure to gather enough information about Kabbage before availing their services. Inquire about the specifics of their loan packages and do not be afraid to ask questions. It will also be helpful to know more about similar services from other companies, so you can compare their pros and cons and make a more informed and accurate decision for your business.

FAQ

General Kabbage Business Loan Questions

In this section, you will find answers to general Kabbage Business loan questions.

Kabbage Business Loan Qualifications

In this frequently asked question section, you will find questions pertaining to Kabbage business loan qualifications.

Kabbage Business Loan Payment

In this section, you will find answers to questions pertaining to Kabbage business loan payments.

Kabbage Business Loan Rates

In this frequently asked question section, you will find questions pertaining to Kabbage business loan rates.