Update: As of October 2020 Kabbage was acquired by American Express. Read more about the acquisition here.
As a general rule, if something seems too good to be true, it is. Kabbage offers fast, flexible financing. Approval is easy to obtain, and in most cases, you can have funds in just a few minutes. In addition, their minimum eligibility requirements are much easier to meet than some others. Wondering if Kabbage is right for you? Our in-depth Kabbage review can answer that.
Kabbage is one of several lending companies online. It provides small business funding in the form of a line of credit. Now, I reveal the details about this online lending option in my in-depth Kabbage review.
Kabbage Review: Basic Background
Kabbage is a venture funded company that is backed by investors which include SoftBank Capital, Thomvest Ventures, Reverence Capital Partners, Mohr Davidow Ventures, the UPS Strategic Enterprise Fund, ING, BlueRun Ventures, Santander InnoVentures, Scotiabank, and TCW/Craton.
The company offers perks for its customers. These include specials from Dun & Bradstreet, UPS, Vonage, and Adobe Creative Cloud among others.
Kabbage Review: What You Need to Know about Kabbage Loans
First, they offer lines of credit. This means it is revolving credit you can use as needed. For most, amounts of up to $250,000 are available. You can qualify in as little as 10 minutes. Furthermore, terms are 6, 12, or 18 months. You have to be in business for more than one year, and your business revenue has to be $50,000 annually or $4200 per month over the last 3 months.
Kabbage Review: Credit Reporting and Score Requirements
In the course of this Kabbage review, I could not find anything concrete about a credit score requirement or credit reporting. I did find other reviewers that had contradicting information. For example, one claimed there was no minimum interest rate requirement.
In contrast, another claimed that the minimum interest rate for application approval is 500. Another put the minimum at 560. Whatever the case, it appears that their minimum required credit score is much lower than others in the field. In addition, one reviewer stated that they do not report on-time payments to the credit agencies, but they may report late or missed payments.
The only thing concrete I could find from Kabbage themselves is that they do a one-time hard credit pull. A hard credit check will affect your credit score. Also I found this information in the FAQs on the Kabbage website. It wasn’t just out there on a top page.
Kabbage Review: Approval and Receipt of Funds
Kabbage links to your bank or merchant accounts to understand your cash flow and decide what amount you can afford to borrow. Their lines of credit range from $1,000 to $250,000.
For lines of credit up to $200,000, if they are able to automatically get business information and verify your bank account, they can approve a loan in minutes. Amounts over $200,000 must have a manual review. Sometimes, mistakes happen during the sign-up process. Also, they may send small deposits to help confirm your banking information for security purposes. In these cases, it may take longer to get access to funds.
Once everything is settled, they send funds to the account of your choice. If you choose to have your funds deposited to a PayPal account, it takes just a few minutes. However, loans that go to a business checking account can take up to three days to be deposited. It just depends on your bank.
They retain access to your account. This means they can review your revenue faster than other lenders. Still, it also means they have access to your account for the duration and beyond unless you take action.
If you make a draw using the dashboard or app, you have to take a minimum of $500. In contrast, if you use your Kabbage card there is no minimum draw.
Kabbage Review: Interest Rate vs. Fees
Kabbage uses a monthly fee model rather than an annual percentage rate. Fees range from 1.5 – 10%. This sounds fabulous, of course, but you need to look a little closer. First, the fee amount is based on business performance factors. This is similar to how traditional lenders assign interest rates, so not really a big deal.
The problem comes in with how the fee is actually applied. They are forthright about this on their site, but you do have to dig around and do some research to fully understand it. They offer a calculator to help you. Use it.
I gave it a shot, and according to the calculator on the Kabbage website, a $30,000 loan paid out over 6-months at a 3% fee would result in a total of $33,300 total being paid back. If you do the math on that, you are paying back an effective 11% interest rate, if it were interest and not a fee.
Three percent of $30,000 is $900. You pay that $900 fee each month for the first two months, and the $375 per month for months 3-6. While I could not find an explanation on the reduction in fee over the last 4-months, it could have to do with the reduction in principal. The issue is, you end up paying way more in fees than it may appear until you dig a little deeper.
With fees going up to 10%, it is imperative that you use the calculator to get a true understanding of loan cost on the front end.
Kabbage Review: What Does Kabbage Say About the Issue?
Here is how Kabbage explains it on their site:
“Kabbage’s maximum rate for each month is 10%. Third party partners may occasionally charge up to an additional 1.5% for each month. Every month you’ll pay back 1/6 of the total loan (for 6 month loans), 1/12 of the loan amount (for 12 month loans), or 1/18 of the total loan (for 18 month loans) plus the monthly fee.
Your actual fee rate if qualified is based on a review of your revenue and credit history. For more details, read about our Rates & Terms.”
Kabbage Review: Does Kabbage Make Loans to Everyone?
The short answer is no. They state that they do not extend credit to those businesses dealing in “marijuana, CBD, firearms, gambling, financial institutions, lending or non-profit organizations.” However, there is a footnote on firearms that states only specific businesses dealing in firearms are excluded. Consequently, some firearms dealers are eligible. If this is you, be sure to do your due diligence.
Speaking of Due Diligence: Ratings and Reviews
I never write reviews without checking out the reviews of others. Consequently, this Kabbage review is no different. I find it wise to start at the Better Business Bureau. Kabbage has an impeccable BBB file. They have been accredited since 2014. In addition, they have an A+ rating.
Also, there are over 180 reviews and they are overwhelmingly positive. As a result, they have a rating of 4.5 stars. Most of the positive reviews were noting how fabulous customer service is.
The one negative review I found, though I admittedly stuck to the ones in the most recent year, was related to the person not fully reading the information on the website or asking questions. There are 49 complaints on their BBB file, which are separate from reviews. With complaints, Kabbage can respond.
From what I can see, they responded each time and either made the situation right, or they answered the issue with how the customer simply did not understand the process as it was clearly written on the website.
In addition to the BBB, I looked at other review sites when conducting my Kabbage review. Other sites had more negative information. Virtually all of the negative reviews were related to either unexpectedly high payments, credit inquiries, or bank account access. It appears that, due to ongoing account access, they can draft payments from your account.
While they do disclose this, it seems a lot of borrowers miss it. As you can imagine, this results in some overdrawn bank accounts.
Kabbage Review: The Final Decision on Kabbage
My final opinion after my Kabbage review is, they will do in a pinch but try to find something better first. It appears that they truly stand by what they do and offer a legitimate product. They do not lie about anything or misrepresent themselves in any way.
However, the fee model is confusing even to those that work with finances every day, like me. It could be seen as a ploy to make it appear that interest rates are 1.5% to 10%, when in fact there is no actual interest rate, and the fees are much higher than it sounds. The information is all there, but you do have to look for it.
I highly recommend, if you choose to take out a line of credit with Kabbage, you do complete and thorough research. Read through positive and negative reviews on the BBB and on other sites, and read all of the FAQs on the Kabbage website, along with the footnotes.
How Do I Find Something Better?
That’s the million-dollar question isn’t it? Most people use a service like Kabbage because it is easier to get approval with a poor credit score. My Kabbage review convinced me that if you can get funding that costs less, you should. To do this, you need to increase fundability. The truth is, your credit, both business and personal, are only a small piece of the complete fundability of your business.
What is Fundability™?
At its core, Fundability is the ability to get funding for your business. When a lender considers lending to your business, do they feel that you are high risk? Do you appear to be a business that can and will pay back the debt? Lenders are in it for the money, and they need to feel they will get a return on their investment. Truly, a high credit risk is not a wise lending choice.
How Do You Increase Your Fundability?
The harder question is how does a business increase their fundability? What makes this answer difficult is that there is so much the answer must cover. As I mentioned, a great business credit score is important. However, there is a lot more to it.
A potential creditor needs to see that your business is legitimate and profitable. Many loan applications are denied approval due to fraud concerns. Others, simply because something didn’t match up and threw up a red flag. Maybe the addresses or phone numbers didn’t match on a couple of reports and it just looks unprofessional.
Make Sure Your Business Is Set Up to Be Fundable
It has to be set up to appear to be a fundable entity separate from you, the owner. How do you accomplish this? Make sure your business has a fundability foundation. The building blocks of a fundable foundation include:
- Separate Contact Information
- An EIN
- Dedicated Business Bank Account
- All Necessary and Proper Licenses
- Professional Business Website
In addition to a fundable foundation, the following factors affect fundability.
Business Credit Reports
The next piece of the fundability puzzle after the fundable foundation is your business credit report. That is the credit report, much like your consumer credit report, that details the credit history of your business. It is a tool to help lenders determine how credit worthy your business is.
Where do business credit reports come from? There are a lot of different places, but the main ones are Dun & Bradstreet, Experian, Equifax, and FICO SBSS. Since you have no way of knowing which one your lender will choose, you need to make sure all of these reports are up to date and accurate.
Other Business Data Agencies
In addition to the business credit reporting agencies that directly calculate and issue credit reports, there are other business data agencies that affect those reports indirectly. Two examples of this are LexisNexis and The Small Business Finance Exchange. These two agencies gather data from a variety of sources, including public records. This means they could even have access to information relating to automobile accidents and liens. While you may not be able to access or change the data the agencies have on your business, you can ensure that any new information they receive is positive. Enough positive information can help counteract any negative information from the past.
In addition to the EIN, there are identifying numbers that go along with your business credit reports. When considering what is fundability, you need to be aware that these numbers exist. Some of them are simply assigned by the agency, like the Experian BIN. One, however, you have to apply to get. It is absolutely necessary that you do this.
Dun & Bradstreet is the largest and most commonly used business credit reporting agency. Every credit file in their database has a D-U-N-S number. To get a D-U-N-S number, you have to apply for one through the D&B website.
Business Credit History
Your credit history has everything to do with everything related to your credit score. This is a huge factor in the fundability of your business.
Your credit history consists of a number of things including:
- How many accounts are reporting payments?
- How long have you had each account?
- What type of accounts are they?
- How much credit are you using on each account versus how much is available?
- Are you making your payments on these accounts consistently on-time?
The more accounts you have reporting on-time payments, the stronger your credit score will be.
On the surface, it seems obvious that all of your business information should be the same across the board everywhere you use it. However, when you start changing things up like adding a business phone number and address or incorporating, you may find that some things slip through the cracks.
The key to this piece of the business fundability is to monitor your reports frequently.
This encompasses a broad spectrum of things. First, there is the obvious. Both your personal and business tax returns need to be in order. Not only that, but you need to be paying your taxes, both business and personal. However, there is yet another layer.
It is best to have an accounting professional prepare regular financial statements for your business. Having an accountant’s name on financial statements lends credence to the legitimacy of your business. If you cannot afford this monthly or quarterly, at least have professional statements prepared annually. Then, they are ready whenever you need to apply for a loan.
Often tax returns for the last three years will suffice. Get a tax professional to prepare them. This is the bare minimum you will need. Other information lenders may ask for include check stubs and bank statements, among other things.
There are several other agencies that hold information related to your personal finances that you need to know about. Everyone knows about FICO. Your personal FICO score needs to be as strong as possible. It really can affect business fundability and almost all traditional lenders will look at personal credit in addition to business credit.
In addition to FICO reporting personal credit, you have ChexSystems. In the simplest terms, this keeps up with bad check activity and makes a difference when it comes to your bank score. If you have too many bad checks, you will not be able to open a bank account. That will cause serious fundability issues.
Personal Credit History
Your personal credit score from Experian, Equifax, and Transunion all make a difference. You have to have your personal credit in order because it will definitely affect the fundability of your business. If it isn’t great right now, get to work on it. The number one way to get a strong personal credit score or improve a weak one is to make payments consistently on time.
So much plays into this that you may not even think about. First, consider the timing of the application. Is your business currently fundable? If not, do some work first to increase fundability. Next, ensure that your business name, business address, and ownership status are all verifiable. Lenders, even Kabbage, will look into it.
Lastly, make sure you choose the right lending product for your business and your needs. Do you need a traditional loan or a line of credit? Would a working capital loan or expansion loan work best for your needs? Choosing the right product to apply for can make all the difference.
Kabbage Review: Final Words
If you have no other options and you are desperate, Kabbage can help you out in a pinch. However, you must be sure you know what you are getting into. If you qualify for a good rate with them, you likely qualify for a loan that does not cost as much somewhere else. If your fundability is not up to par, get started working on that now. Start by doing an analysis of Fundability and go from there.