In the world of online business lending, few companies have grown as dramatically as Kabbage. Much of Kabbage’s success can be attributed to their incomparably loose requirements. Their product also comes with various features that stand apart from their massive competition. It’s safe to say that Kabbage has created a business model that appeals to businesses looking for a unique yet sensible funding solution.
However, the popularity of Kabbage doesn’t necessarily mean it’s the right choice for every smaller or younger business. 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:
What is Kabbage?
Kabbage is an online business lender that offers a single product: a business line of credit. You can borrow up to $250,000 with terms of up to 18 months. 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.
What Do You Need to Apply for Kabbage?
To apply for Kabbage funding, you will need the following documents and information:
- Business name, type, and industry
- Business tax ID
- Social security number
- Business checking account
If you use accounting software, you will also need to provide at least three months of records.
Other Important Factors for Kabbage:
Eligible businesses must be in business for at least one year and generate at least $50,000 in annual revenue (or $4,200 per month for the last three months). There is no minimum credit score but Kabbage does check your FICO score when you apply. Eligible businesses must have an average bank balance of $2,500, and cannot 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 as long as the bankruptcy was discharged at least one year ago. The business owner must also sign a personal guarantee. This means that if you default, Kabbage could potentially seize your personal assets to make up for the loss. Depending on your business’s financial health, Kabbage may file a general lien on your business.
For Kabbage, You Need to Know That:
Depending on your terms, borrowing amount and cash flow, your interest can range from 1.5% – 10% per month. This comes out to an APR of 24%-99%. Terms can be six, twelve, or eighteen months.
Kabbage incorporates interest, a processing fee, and an underwriting fee to create a single monthly fee, which is 1.5% to 10% 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:
For the six-month or twelve-month term, Kabbage charges a monthly fee every month you have a 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.
For the six-month term, Kabbage front-loads your interest to their first two months. For the twelve-month term, your interest is front-loaded to your first six months. 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 of your payments.
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.
How To Apply With Kabbage:
The speed of the funding process 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:
Step 1: Fill Out Application
You can apply for Kabbage funding through United Capital Source. Before applying, a UCS executive will work with you to make sure Kabbage is indeed 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.
Step 2: Connect Accounts
After filling out 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. Do you sell products on Amazon? Do you use Stripe to process payments? Connecting more accounts gives Kabbage more reasons to give you a larger credit line.
Step 3: Review Your Offer
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.
Either way, UCS will help negotiate rates and terms to make sure you receive the most beneficial arrangement for your business.
Step 4: Get Funded
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 $200,000 may take longer than one business day to deposit, regardless of which account you use.
Kabbage: Post Funding
You can draw funds from your line of credit as often as once per day. Minimum payments will automatically be withdrawn from your bank or PayPal account every month. You can also make manual payments at any time.
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 make your available credit line go back up by $190.
You can review your payment history and view your upcoming payments through Kabbage’s online dashboard.
What are the Advantages of Kabbage?
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 simply connect your accounts online. And unless you request more than $200,000, 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 major advantage of Kabbage is their 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, though Kabbage’s fee system is a bit complicated, it is still 100% transparent. The aforementioned fee percentages are readily available on Kabbage’s website. Before accepting your offer, you can see exactly what your fees will be and how much you’ll pay every month. Other business lenders might make you pick up the phone or fill out a brief online form before disclosing this critical information.
What are the Disadvantages of Kabbage?
Kabbage’s most significant disadvantage is its cost. 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 loose requirements and the super-fast funding process. Many businesses pursue Kabbage because they can’t qualify for anything else, and they need money right away.
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 does report your payments so you can build credit. With these lenders, just a few months’ worth of timely payments could significantly improve your personal and business credit score.
Frequently Asked Questions
Here are some common questions potential clients might have about Kabbage:
How Long Will it Take for Money to Get into My Account?
Once you submit your application, you should learn if you’ve been approved in under ten minutes. The time it takes for funds to reach your checking account depends on the size of your credit line. For credit lines under $200,000, you could have funds in your account in a matter of hours. If your line of credit is over $200,000, it could take up to three business days for funds to reach your account.
What is the Minimum Loan I Can Take Out?
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.
How Does the Kabbage Fee Structure Work?
Kabbage’s fee structure depends on your terms.
For the six-month term, you’ll pay 1.5% to 10% of the total amount for the first two months. Then, you’ll pay 1.25% of the total amount for the last four months.
For the twelve-month term, you’ll pay 1.5% to 10% of the total amount for the first six months. Then, you’ll pay 1.25% of the total amount for the last six months.
For the eighteen-month term, you’ll pay a flat fee of 1.25% to 3.25% of the total amount every month.
Your exact percentage will depend on your business’s financial health.
What Are Kabbage’s Interest Rates?
On average, the APR for a Kabbage line of credit comes out to approximately 40%. But depending on your business’s financial health, you could have an APR as low as 24% or as high as 99%. As we mentioned earlier, these high rates are the price you pay for accessibility and convenience.
How Are Kabbage’s Requirements So Flexible?
Kabbage’s loose requirements stem from its innovative underwriting process. Traditional business lenders usually base decisions on credit score, annual revenue, time in business, and available working capital. Kabbage, on the other hand, bases decisions on data from your linked accounts. This data gives a much clearer picture of your business’s overall performance than your credit score and annual revenue. In other words, Kabbage presents more reasons to approve you than it does to decline you.
What If I’m Declined by Kabbage?
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 look into other options. Plenty of other business lenders have very loose requirements. But unlike Kabbage, they might offer a variety of 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 want to 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 at hand.
Making Your Decision
Kabbage’s accessibility and convenience only maintain their 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 probably 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.