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How to Get a Small Business Loan.
What are They?
Provider of short-term small business loans for 1 to 12 months.
How popular is it?
$550 million in loans to over 100,000 small businesses.
Who will qualify for a loan?
Must be in business for at least 1 year, at least $50,000 or more in annual revenues, and a personal credit score of at least 550.
Who are they right for?
Businesses looking for very short term loans (under 6 months), and businesses that need a loan structured as a line of credit.
Non-profits, title loan companies, and insurance businesses.
Personal Guarantee required?
No. For loans over $20K, Kabbage may place a lien on general business assets. This means if you do not pay, they can come after any asset of your business.
As little as 7 minutes (but several days if your business accounts can’t be verified).
Where do they lend?
All 50 States and the UK for eBay sellers. Not in US territories.
How much do they lend?
2K to 100K.
How much can I qualify for?
No data available.
For how long?
Borrow for 1 to 12 months.
Cost/Interest rate of loan?
Effective Annual Percentage Rate currently ranges between 34% to 102% (see cost section for more details).
How do payments work?
Fixed payment is automatically deducted each month from your PayPal or business checking account.
You apply online and provide your business address, business tax ID, and your social security number. Kabbage verifies any or all of your financial accounts (e.g. bank accounts, PayPal accounts, Amazon seller accounts, Quickbooks, etc.) and uses them to determine if you qualify and for how much.
Businesses that need quick, ongoing access to credit but have relatively low annual revenues may benefit from a Kabbage loan. These are the advantages:
- Quick application and access to funds. During the online application, you simply connect any or all of your business-related accounts (e.g. Quickbooks, Etsy, Ebay, etc.), and Kabbage instantly evaluates your business’ performance and determines if you qualify. If you do, funds are instantly available in your PayPal account or in 2-3 days in your checking account. Traditional bank lenders can take weeks or months to approve your loan application.
- Lower revenue requirements. Kabbage only requires you to have $50,000 in annual business revenues, which is 2-3 times lower than what most other short term lenders require.
- Line of credit structure. Businesses approved for a Kabbage loan get a maximum credit limit which they can borrow against. You don’t need to take all the funds at once, but can borrow the money as and when you need it. You only pay interest on funds that you use.
The primary disadvantages to borrowing money from Kabbage are the high interest rates and the short term of the loan. The effective interest on the loan ranges from 34% to 102% APR, multiple times higher than the interest charged by traditional and SBA lenders. Kabbage requires you to pay back at least ⅙ of your loan every month, resulting in a full pay-off within 6 months. If you need a loan with a long-term maturity date, others lenders have more offerings. While you can pay off a Kabbage loan early, you pay much more of the loan back in the first 2 months, so you don’t benefit much by paying off early.
- Personal Credit Score: At least 550.
- Years in Business: At least 1 year.
- Revenues: At least $50,000 in yearly business revenues.
- Other Requirements: No more than 3 days ending in a negative balance in the last 90 days. Other business loans should have a low balance or be paid off in full.
- Industry Exclusions: Non-profits, title loan companies, and insurance businesses.
Collateral Required? No. While Kabbage doesn’t require you to pledge collateral (e.g. business equipment), they may place a general lien on your business assets. It is legally more difficult for a lender to enforce a lien than it is to claim specific collateral. From a borrower’s perspective, however, the effect can be the same. If you don’t pay back the loan, Kabbage can sell off any of your business assets to satisfy the loan.
Does the loan require a personal guarantee? Yes. If you don’t make timely payments, your business and personal assets can be at risk. Your business and personal credit score will be negatively affected.
Upfront Fees – No.
Servicing Fees: None.
Are interest rates variable? N/A.
How Loan Costs Work With Kabbage
If you are familiar with a home loan or credit card loan, you have likely heard interest rates on those loans quoted as an APR. APR is the cost of the loan over one year, expressed as a percentage.
Kabbage does not quote their loans in terms of an APR. Instead, as you can see in the table below, they give you the dollar cost of the loan, which is calculated from the fees charged. The fees range from 1% to 13.5 % of your loan amount in the first 2 months depending on your creditworthiness. The fee for months 3 through 6 is always 1% of your loan amount per month.
While quoting things this way makes it easy to understand the total dollar cost of the loan, it does not make it easy to compare Kabbage loans with other loan products. To do that, you need to convert the above numbers into an Annual Percentage Rate (APR). This can be done using the calculator below.
Here are three examples of what your APR would be based on whether you get a low (3%), medium (7%) or high (12%) interest rate for your first 2 months. Keep in mind your interest payment is always 1% of the loan amount for the last 4 months.
- Low Interest Rate For First 2 Months (3%): 34.26%
- Medium Interest Rate For First 2 Months (7%): 63.3%
- High Interest Rate For First 2 Months (12%): 101.68%
As you can see in the above examples, you are paying around 34% APR on the low end and 102% APR on the high end for a Kabbage loan. The numbers shown above are for the 6 month plan. If you choose the 12 month repayment plan, the fees are slighly higher because you are borrowing for a longer time.
Below is a screenshot from Kabbage’s website outlining loan costs for a sample $10,000 6-month loan.
One of Kabbage’s biggest selling points is its quick application and approval process. It claims to be the “world’s fastest and easiest way to get a line of credit.” Although Fundbox and Behalf had the fast application processes of all the lenders we reviewed, Kabbage is really fast. It only takes about 10 minutes to fill out their application and they approve you in minutes.
What happens after approval? Upon approval, you are notified about the amount of the loan that you qualify for as well as well as the fee amount. You will have instant access to funds if you have a PayPal account. If you have a business checking account, it takes 2-3 days to have access to the funds. You can withdraw up to the entire amount of the loan, and you are limited to one withdrawal every 24 hours.
What information/documents are needed for the application? Business tax ID, social security number, and your online login information for all the business accounts you want to provide information for (don’t worry, Kabbage doesn’t store your passwords). No other paperwork/documentation is needed, as long as the online application system is able to verify your business accounts. If not, you can submit a voided check or other documents.
Do they need online access to any systems – Quickbooks, PayPal, bank accounts? Yes. You must either have an online business checking account or a PayPal account to be approved. Also, during the application process, you should provide data for all systems (but at least one) which show many revenue-bearing transactions from your business to increase your likelihood of qualifying for a loan and getting a low fee. This is the information that Kabbage uses to evaluate the financial state of your business and your ability to pay back the loan. This screenshot shows the different business accounts you can connect.
Is there a credit report pull? If so at what point in the process? Yes. Kabbage pulls your personal credit history after you submit your online application. It’s a “hard” credit pull, so it can temporarily harm your credit score.
If so – What credit reporting service do they use? Experian.
Does Kabbage report to the credit bureaus? Kabbage doesn’t report to credit bureaus when you have an outstanding loan with them. If you become delinquent on a loan and it goes into collections, then they report this to the personal credit reporting agencies.
Loan Sizes and Terms
What are the minimum / maximum terms of the loan? Minimum is 1 month, and the maximum is 12 months. Their plans are called the “6 month plan” or “12 month plan,” but you can pay back in less time than that to save on fees. Fees are slighly higher on the 12 month plan since you’re potentially borrowing for a longer time.
What is the minimum / maximum amount of the loan? Minimum is $2,000, and the maximum is $100,000.
Payment Methods & Schedule
- Schedule of Payments: Monthly.
- Payment Initiation: Your first statement arrives 30 days after you take out funds. You have 21 days after receiving the statement to make the minimum payment. If you haven’t paid by the due date, Kabbage automatically deducts the minimum payment from your PayPal or business checking account.
- Method of Payment: Via PayPal or your business checking account.
- Penalties For Missing Payments: If you’re late on a payment, the Kabbage rep I spoke to explained to me that Kabbage will give you a 5-10 day deferral or other appropriate payment plan as long as you reach out to them in advance and let them know you might miss a scheduled payment.
- What Happens on Pre-Payment? You can pay off your Kabbage loan at any time without pre-payment penalties. However, the first 2 month’s payments are the highest, which diminishes the benefit of paying off the loan early. The screenshot below shows the total fee amounts paid in each month based on paying a 4% interest rate in the first 2 months. If you pay the loan off early you don’t have to pay the fees listed for subsequent months.
See the “payment schedule calculator” under the “What Does It Cost” section of this page.
Kabbage has phone, live chat, and email customer support for borrowers and applicants. There is a pretty comprehensive FAQ page on their website. Of all the lenders we reviewed, I thought Kabbage had the most responsive customer service.
US-based or International? US-based. Kabbage HQ is located in Atlanta, GA.
Monday – Friday 8 AM – 9 PM EST and Weekends 10 AM – 6 PM EST. Live chat support has limited availability.
Other Lending Products
In addition to small business loans, Kabbage offers personal loans through its sister service, Karrot Personal Loans. These are unsecured personal loans of $5,000-$35,000 with an origination fee and monthly payments for either 36 or 60 months based on your credit history. You can use a personal loan for any legal purpose, including funding an existing business.
Need some money for your business? Click here to get our FREE Guide:
How to Get a Small Business Loan.
The Bottom Line
If you can’t qualify for a traditional bank loan or SBA Loan, Kabbage is a good alternative with a quick application process and virtually instantaneous access to funds. You only need to be in business for 1 year, have annual revenues of $50K, and a personal credit score of at least 550 to qualify for a Kabbage loan.Visit Kabbage