The CEO of a SoftBank-funded fintech told us his startup would help small businesses struggling with cash flow. But a bombshell report says the company blindsided borrowers by slashing their credit during the pandemic.

• As small businesses across the US reel from the economic impact of the coronavirus pandemic, many are in dire need of working capital to stay afloat.
• More than a dozen customers of the popular small business finance company Kabbage told Bloomberg that they were blindsided when the SoftBank-backed fintech abruptly shut off credit lines.
• "They've left me high and dry when I needed them the most," said Kabbage customer Rob Jacques, the cofounder of a software consulting company in California.
• Jarring as it may be, the move is completely legal, and small-business adviser and coach Bob Prosen says that anyone with an open line of credit should draw on it fully to protect against a recall.
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The popular small business finance company Kabbage just cut off its borrowers right when they needed them most, according to a report from Bloomberg News on Wednesday.

As small businesses across the US reel from the economic impact of the coronavirus pandemic, many are in dire need of working capital to stay afloat, and more than a dozen Kabbage customers told Bloomberg reporters that they were blindsided by the company's decision.

Business Insider has reached out to Kabbage for comment, and will update this story when we hear back.

Fintech companies including Kabbage are jockeying for a share of the unprecedented $349 billion small business relief program authorized last week by the US government, which should significantly aid businesses facing economic disruption from the public health crisis.

But Kabbage's move - just two days before applications for the program open - appears to contradict the vision that cofounder and CEO Rob Frohwein laid out to Business Insider earlier this year.

Frohwein and his cofounders started Kabbage in 2009 to offer automated, fast lines of credit of up to $250,000 for small businesses that struggle to get financing from traditional banks.

Frohwein described the business as "cash flow as a service," and touted the greater level of transparency the company is able to offer borrowers as a result of its comprehensive insights into the financial details of individual customers.

"The whole idea really is to surround the small business with a set of information and products that allow them to focus on their business and allow us to help them manage their cash flow," he told Business Insider at the time.

Since Kabbage launched in 2009, the SoftBank-funded financial-technology company has raised $489 million in equity to become a leader in the rapidly expanding small-business-fintech space.

Kabbage also has $900 million in secured debt, according to Kroll Bond Rating Agency, which placed it on "Watch Downgrade" last week along with nine other US small business asset-backed security deals.

A long-time entrepreneur himself before Kabbage, Frohwein said he was acutely familiar with the struggle of frantically searching for a missing check and the sinking feeling of trying to meet payroll while big invoices were outstanding.

He also told us that small businesses "borrow too much, they borrow too soon, and they hold on to it for too long." The company in March released new tools it said would help customers take only what they need, when they need it.

But customers interviewed by Bloomberg News shared experiences that didn't align with that vision of transparency, empathy, and conservative financing.

Rob Jacques, cofounder of a software consulting company in California, told Bloomberg that Kabbage had been calling him every day asking him to borrow more money before abruptly shutting off his access to credit.

"They've left me high and dry when I needed them the most," Jaques said.

Jarring as it may be, the move is completely legal, according to small-business adviser and coach Bob Prosen.

In a recent interview with Business Insider about immediate steps that small businesses should take to prepare for the emergent recession, Prosen said that anyone with an open line of credit should draw on it fully to protect against a recall.

"In most banks there are clauses where if they need to, they can recall that loan and just sweep your account," Prosen said.

Jobs data show that the struggles of small employers started well before the infection-mitigation efforts got significantly underway in March. Research from the JPMorgan Chase Institute shows that most small businesses lack the cash reserves to survive a month-long disruption.

That means that many small businesses are living on borrowed time - and money - until the federally guaranteed loans start to become available for employers and sole-proprietors on April 3, and for freelancers and self-employed workers on April 10.

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