Online lending platform Kabbage says it sees more mobile lending, more women and minority owned businesses seeking loans and more businesses from rural and lower to middle income communities too.
Small Business Trends connected with Kathryn Petralia, president of Kabbage, to learn more about its core offering and other steps it’s taken to add value to entrepreneurs. Today 140,000 small businesses use Kabbage, which was launched in 2009 by Petralia and Rob Frohwein. Today, Kabbage has delivered over $4.5 billion in funding, moving the loan process from long lines at a physical bank to a shorter wait on mobile or the web.
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Small Business Trends: I think most folks in 2018 know you’re not a bank, but how else is Kabbage different? Tell us something that’s unique but not front and center, but still important.
Kathryn Petralia: Data is a big differentiator for us. Across our 140,000+ customers, we have more than 2 million live data connections with our customers. It gives us the unique ability to provide a readily-available and real-time line of credit that dynamically matches business performance.
In addition, we offer businesses the option to apply, qualify and draw funds entirely through a mobile app. Our complementary Kabbage Card puts the purchasing power of a small business line of credit in the wallet of every customer with no annual fee, allowing customers to make daily purchases at any point of sale, whether online or in-store.
Kabbage is also unique in that we license our technology to global banks, providing them more reach to serve their small business customers in a meaningful, cost-effective way.
Small Business Trends: So a more broad question for you, and maybe it’s just my observations but I see tons of entrepreneurs using personal savings to keep their business going. Why does this happen? I wouldn’t want to be in their shoes.
Kathryn Petralia: If a business needs less than $250,000 in credit, it’s hard to get a traditional loan. A bank’s costs to underwrite a $50,000 loan or $5,000,000 loan are the same, which understandably turns the banks’ focus to larger customers. This pushes many small businesses to unfavorable options like credit card debt or personal savings to fuel their business.
Using Kabbage is much faster and easier than traditional lending processes. With Kabbage, in a matter of minutes small businesses can apply, qualify and access working capital, and our lines of credit go up to $250,000. Customers can borrow what they need, when they need it — for everything from payroll to marketing expenses, equipment, expansion and more.
Working capital has always been a challenge for small businesses and yet it’s a key component of growth. Now, entrepreneurs have access to needed funds to help them build their business over time.
That means no more constant trips to the bank or submitting new applications when they need more funds.
Small Business Trends: I’ve noticed a lot of small businesses don’t understand the true costs of borrowing. How does Kabbage help in that area?
Kathryn Petralia: We encourage business owners to be sure they are completely comfortable and clearly understand the total cost of capital; I’m talking about actual cents on the dollar.
Any lending provider should be able to tell a business owner exactly what the cost will be, including all fees, and without resorting to a rate-based answer. Educating yourself is a wise approach so you know you’re selecting the best option for you and your business.
Kabbage collaborates with a group of other lending platforms to ensure pricing transparency with our customers. The result is the SMART Box initiative (Straightforward Metrics Around Rate and Total Cost), which includes clear and consistent pricing metrics, metric calculations, and metric explanations to help small businesses understand and assess the costs of funds.
Small Business Trends: What kinds of businesses do you help?
Kathryn Petralia: We have continuously expanded our customer base over the years and now serve all types of businesses, both online and offline.
Today, most of our customers are brick-and-mortar shops, representing all walks of businesses, including professional services, medical practices, spas and salons, retail, restaurants, construction and about any other type of business you can imagine.
Small Business Trends: What interesting trends are you noticing?
Kathryn Petralia: Three things come to mind: how businesses are accessing capital, who is doing it, and why.
For how, we’ve seen a big increase in the growth of mobile lending. The total number of loans accessed via mobile increased by more than 360 percent between April 2014 and February 2018. In the same period, the total dollars accessed via mobile devices increased over 1,220 percent.
The who is unique, with credit due to Kabbage’s fully-automated application process. We find more minority- and women-owned businesses are taking advantage of online processes that don’t require physical trips to the bank. We also see an uptick in businesses based in both rural and low- to medium-income areas turning to online lending services.
The why is shifting towards technology. In a recent Kabbage poll of SMB’s, we found high expectations for sales growth this year as well as plans to make investments in technology — everything from automation to cybersecurity. Companies noted plans to make greater investments in mobile technologies to improve their customer experience, and reach new customers by spending more on social media advertising.
Images: Kabbage, Krahenbuhl Global Consulting
People are always looking for alternative sources of money and mobile lending is an amazing way to get some quick financing.
I think that it is the difficulty of getting accepted in bank loans that drives people to mobile lending.
Hi, it sounds win-win. While I’m not a Kabbage customer, it sounds like speed + transparency is a big part of their appeal. I heard their name mentioned a lot over the last several years so it was cool to communicate directly.
This means plenty of opportunities for lending apps as well. Smaller money can command higher interests.