In online business lending, few companies have grown as dramatically as Kabbage. Much of Kabbage’s success can be attributed to its underwriting requirements and various features that stand apart from its massive competition.
It’s safe to say that Kabbage created a business model that appeals to businesses looking for a unique yet sensible funding solution. That business model also appealed to investors as American Express acquired Kabbage in 2020.
However, the popularity of Kabbage doesn’t necessarily mean it’s the right choice for all small business owners. You can only answer this question by digging into the minor details of Kabbage’s requirements and repayment structure.
In this guide, we’ll answer the following questions and more:
Kabbage is an online business lender owned by American Express (Amex). The services include a business line of credit and some financial management tools.
The company launched in 2008 and became one of the fastest-growing online lenders in the market. During the 2020 pandemic, Amex acquired the company.
Kabbage no longer maintains its website, but potential borrowers can apply through the Amex website. You can borrow up to $250,000 with 6, 12, or 18-month terms. When you consider the simplicity of the application and the flexibility of their requirements, Kabbage may have one of the most advantageous products on the market.
To apply for Kabbage funding, you will need the following documents and information:
Applicants must have a valid business checking account. Kabbage connects to your business bank account to review cash flow when determining eligibility.
Businesses must meet the following criteria:
Eligible businesses must have an average bank balance of $2,500 and not have large outstanding balances with other business lenders. You’ll have to contact Kabbage to determine what constitutes a “large” balance.
Businesses with one previous bankruptcy can get approved if the bankruptcy was discharged at least one year ago. The business owner must also sign a personal guarantee. If you default, Kabbage could potentially seize your personal assets to compensate for the loss. Kabbage may file a general lien on your business, depending on your business’s financial health.
Depending on your terms, borrowing amount, and cash flow, your interest can range from 0.25% – 3.5% per month. That’s equivalent to an APR of 9%-36%. Terms can be six, twelve, or eighteen months.
Kabbage incorporates interest, a processing fee, and an underwriting fee to create a monthly fee of 0.25% – 3.5% of your total amount. This fee is combined with a percentage of your balance to create your minimum monthly payment.
Here’s where it gets a little complicated:
The total monthly fees incurred depend on the specific terms of the line of credit. Each time a business draws from the line of credit, it’s counted as a separate installment loan.
For the six-month or twelve-month term, Kabbage charges a monthly fee every month you have an outstanding balance. For the eighteen-month term, your monthly fee is determined as soon as you’re approved. You’ll pay an equal portion of this fee each month, regardless of what your balance is at the time.
Kabbage front-loads your interest for the six-month term to their first two months. Your interest is front-loaded to your first six months for the twelve-month term. But for the eighteen-month term, fees remain the same each month.
In other words, your first two payments for the six-month term and your first six payments for the twelve-month term will be larger than the rest.
Other than the monthly fee, the only other fee is for a late payment, which depends on your balance. It’s $10 for balances less than $100, $35 for balances between $100 and $5,000, and $100 for balances over $5,000. If you miss a payment, you have four days to make the payment before the fee applies.
Kabbage does not charge a prepayment penalty. But since they front-load your interest for the six and twelve-month terms, paying early won’t save you much money.
The funding process’s speed depends on the accounts you connect with Kabbage and which accounts you use to access the credit line. Some clients can access funds just hours after they apply. Others might have to wait up to three business days.
Here’s how to get started:
You can apply for Kabbage funding through United Capital Source. Before applying, a UCS executive will work with you to ensure Kabbage is the right product for your needs.
If so, you’ll fill out the application with basic information about you and your business. This includes your industry, EIN, social security number, etc.
After completing the application, you’ll be asked to connect Kabbage with your online accounts. In addition to your business checking account and bookkeeping software, this includes any online services you use that can demonstrate your business’s performance.
Kabbage’s algorithm will approve or decline your application in just a few minutes. In the case of the former, you’ll see the size of your proposed credit line, terms, and interest rate. Depending on your financial health, you may be given the option to choose between six, twelve, or eighteen-month terms.
If you tell Kabbage to send funds into a PayPal account (yes, only PayPal), they will appear in the account in just a few minutes. If you tell Kabbage to send funds to a regular business checking account, it could take up to three days for funds to appear.
Funding speed also depends on the size of your credit line. Specifically, credit lines above $100,000 may take longer than one business day to deposit, regardless of which account you use.
You can draw funds from your small business line of credit as often as once per day. Minimum payments will automatically be withdrawn from your bank or PayPal account monthly. You can also make manual payments at any time. You authorize Kabbage to automatically withdraw funds from your account when you sign the loan agreement.
Since Kabbage’s line of credit is revolving, the funds you repay become available to you again. For example, let’s say your monthly payment is $200, and your fee is $10. In this case, paying back that $200 will increase your available credit line by $190.
You can review your payment history and view your upcoming payments through Kabbage’s online dashboard.
Kabbage is one of the most accessible business financing tools in existence. Few online business lenders offer products that are this easy to qualify for. The simplicity of the application process is virtually unrivaled as well. Hardly any paperwork is involved since you can connect your accounts online. And unless you request more than $100,000, you’ll most likely receive your funds in a matter of hours. Thus, if quick and easy are your top priorities, Kabbage may be the best choice.
Another significant advantage of Kabbage is its repayment structure. Many online business lenders require weekly or daily payments, which could put much more pressure on your cash flow than monthly payments.
Lastly, Kabbage’s fee system is a bit complicated, but it is still 100% transparent. Before accepting your offer, you can see your fees and how much you’ll pay every month. The aforementioned fee percentages are readily available on Kabbage’s website. Other business lenders might make you pick up the phone or fill out a brief online form before disclosing this critical information.
Kabbage’s most significant disadvantage is its cost. Many businesses pursue Kabbage because they can’t qualify for anything else and need money immediately. However, anyone who has explored online business lending knows that high fees and APRs stem from convenience and accessibility. In other words, Kabbage’s charges are the price you pay for their requirements and the super-fast funding process.
Kabbage also does not report to personal or business credit bureaus. If you have poor credit, you might want to choose a business lender that reports your payments to build credit. With these lenders, just a few months of timely payments could significantly improve your personal and business credit score.
You can apply for a Kabbage line of credit online by creating and logging in to your Kabbage account through American Express. Kabbage must verify your information before you receive a decision.
If the application needs further review, it may take four to seven business days for applicants to get a decision. The time it takes for funds to reach your checking account depends on the size of your credit line.
For credit lines under $100,000, you could have funds in your account in hours. If your credit line is over $100,000, it could take up to three business days for funds to reach your account.
Each term length (six, twelve, or eighteen months) has its minimum amount. For the six-month term, the minimum is $500. For twelve, it’s $10,000. The minimum for the eighteen-month term is $20,000.
Kabbage’s fee structure depends on your terms.
For the six-month term, you’ll pay 0.25% – 3.5% of the total for the first two months. Then, you’ll pay 1.25% of the total for the last four months.
You’ll pay 0.25% – 3.5% of the total for the first six months of the twelve-month term. Then, you’ll pay 1.25% of the total amount for the last six months.
You’ll pay a flat fee of 1.25% to 3.25% of the total amount every month for the eighteen-month term.
Your exact percentage will depend on your business’s financial health. Kabbage does not charge:
On average, the APR for a Kabbage line of credit comes out to approximately 22%. But depending on your business’s financial health, you could have an APR as low as 9% or as high as 36%. As we mentioned earlier, these high rates are the price for accessibility and convenience.
If Kabbage declines your application, their algorithm will keep you in their system since you’ve already linked your accounts. So, if your business’s financial health improves, Kabbage will contact you to let you know you are eligible for funding.
If Kabbage declines your application and you need money immediately, you should consider other options. Plenty of other business lenders have less stringent requirements.
But unlike Kabbage, they might offer various products and repayment structures. These options might be better suited for businesses that experience occasional dips in revenue or cash flow shortages.
Remember, Kabbage relies on a computer algorithm to approve or decline applications. When an algorithm sees a cash flow problem, it won’t go, “Well, this is the industry’s slow season, so the dip in revenue makes sense.
If your business experiences dilemmas of this nature, you might seek a business lender that uses living, breathing human beings to make decisions. These business lenders won’t decline applications until they know the reason for the issue.
United Capital Source has access to many small business loan options, including:
Kabbage’s accessibility and convenience only maintain appeal if their product works for your cash flow. Different repayment structures or fee systems might give you smaller or more consistent payments.
So, if your cash flow has a unique cycle or is especially fragile, you should prioritize these factors over the simplicity of the funding process. Thinking about this scenario now will prevent you from accepting a product that doesn’t work for your cash flow solely because you didn’t have time to look for anything else.
Based on the feedback of UCS clients over the years, we give Kabbage a 4.7 out of 5 rating. The only knock on them is that they offer one product. Once they expand their product offering, our clients will make them more a part of their businesses.
Disclaimer: The Kabbage Funding trademark is owned by American Express. and its use herein is for reference purposes only and it does not indicate sponsorship or endorsement from American Express.