SoftBank-backed small business lending startup Kabbage is using payments data to get into short-term loans
Small businesses often face mismatches between when they need cash and when they receive cash owed to them. Industry-standard terms can delay a small business getting paid by 30, 45, and even 60 days, which could force them to borrow more.
SoftBank-backed Kabbage, which offers small business loans, is now rolling out custom loans that range from three to 45 days.
These short-term loans will be available to customers using the Kabbage Payments platform, so Kabbage can make credit decisions based on a businesses' day-to-day revenue.
- Kabbage's last equity fundraise was a $250 million Series F from SoftBank in 2017, which boosted its valuation above $1.2 billion. It has also raised hundreds of millions in debt financing to fund its lending platform.
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For small businesses, cash moves slowly.
There are industry-standard delays between providing goods and services and actually getting paid. Invoices are settled 30, 45, or even 60 days later, which can leave small businesses short on cash they are owed, leading them to borrow more over longer periods of time.
Kabbage, the Atlanta-based small business lender backed by SoftBank, offers loans ranging from six to 18 months.
And now, it's offering short-term custom loans, which will range between three and 45 days.
These custom loan products will be available to customers who have a line of credit with Kabbage and are using the Kabbage Payments platform, which the startup launched last year.
Kabbage is adding these short-term loans largely driven by customer feedback, Kathryn Petralia, co-founder and president of Kabbage told Business Insider.
"What we heard from them and saw in the data that we were getting from our customers was that often they needed capital for a very short term, and they knew exactly how long they needed it," Petralia said.
"The products we currently had couldn't serve that."
There's a link between payments and lending - something several payments and lending companies like Stripe, Square, and FundBox have targeted.
The idea is that with insight into a business' ongoing payments, shorter term loans can be issued and repaid through day-to-day revenues.
Kabbage's short-term custom loans can be paid back in full at the end of the period, or can be paid back overtime based on revenues received on the Kabbage Payments platform.
"Customers who are accepting payments through us actually presents a perfect repayment vehicle for that type of loan," Petralia said.
Using payments data, Kabbage can make short term credit decisions.
Small businesses often have a specific use for a short-term loan, Petralia said.
"That's the value of this particular product, is the customers know exactly what they need and they know when they're going to have revenue to support the need," said Petralia.
Kabbage Payments was launched in an effort to provide small businesses a more streamlined way to manage their cash flows. The platform includes digital invoice tracking, a dashboard to manage cash flows and loans, and the ability to send links to get paid electronically.
The payments platform was initially rolled out to existing Kabbage customers. But now, any small business can apply to use it.
Kabbage's last equity fundraise was a $250 million Series F from SoftBank in 2017, which boosted its valuation above $1.2 billion. It has also raised hundreds of millions in debt financing to fund its lending platform.