Kabbage Raises $ 270 Million More For Small Online Retailer – TechCrunch
Cabbage, a platform for online retailers to borrow working capital, is picking up Cabbage Under its own steam: The startup has closed a $ 270 million loan facility from Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners. Kabbage, based in Atlanta, Georgia, will use the funds to expand its financing business both in the United States and beyond. This is one of the largest credit facilities ever granted to a small business lender, and possibly the largest in the online lending space. And the CEO says more funding could follow very soon.
“The growth has been dramatic,” Rob Frohwein, CEO and founder of Kabbage, told me in an interview. “Yes, this is a large facility, but with our rate of growth we will have to look at this again in a relatively short amount of time, believe it or not.”
Matthew Perkins, Senior Managing Director and Head of ABS and RMBS Banking at Guggenheim Securities, says this facility has been structured and sized to meet Kabbage’s funding needs over the next 12 to 18 months and “allow for regular replenishment thereafter” .
Since opening nearly three years ago, Kabbage has spent more than $ 250 million on small businesses, the company says.
That final round of credit comes almost exactly a year after Kabbage $ 75 million raised, which it also invests in the capital it lends to companies (it has borrowed nearly $ 92 million, not including today’s $ 270 million). The company has also increased $ 53.7 million of VC financing in three rounds, with investors like BlueRun Ventures, David Bonderman, Warren Stephens, the UPS Strategic Enterprise Fund, Mohr Davidow Ventures, Jim McKelvey, Thomvest Ventures and SV Angel.
The rapid rise of online finance platforms has been dramatic in the past few months. Borro, an online pawn shop that enables people to deposit high quality goods as collateral for loans of up to $ 1 million, raised $ 112 million last month which she also uses to expand her customer financing. Others like Lending Club and Sponsorship group apply a peer-to-peer structure for online lending.
That rubs off on other tech companies that didn’t start out as credit specialists but still have strong relationships with online merchants who use them to get into the game. Has space Square capital for cash advances; and PayPal says that Thousands of companies have applied for PayPal working capital since the start of a pilot program in September 2013. EBay’s own company works with WebBank as a lender.
According to Frohwein, Kabbage’s credit model has closed a void for online funding for businesses of a certain size – which is not only an opportunity for their own business but also as a partner for others. Providing capital to a class of small businesses that have become unprofitable to traditional banks and many others.
With that in mind, like companies like Square and iZettle, the small merchants who wouldn’t have been big enough to take cashless payments are suddenly offering the ability to accept cards.
“Mainstream lenders cannot economically attract these customers. I think banks like the space, but they currently have a lot of regulatory and high risk debt that makes it difficult for them to return to or get into these markets sensibly, ”he says. “For them, a ‘small business’ makes between $ 10 million and $ 15 million in annual sales. Our average customers bring in between $ 500,000 and $ 1 million a year, some as low as $ 50,000 a year. “
Interestingly, this offers a double chance: Kabbage says that Kabbage is currently working with a very large financial services company to essentially become the online lending platform for these banks to target these users. It will mean banks will get a cut in revenue, but could really increase the number of businesses Kabbage lends to, and this will act as a kind of substitute for credit card use for some establishments.
Another important point about Kabbage is how the company approaches loans and repayments. Based on the idea of big data and the fact that many of these companies are already mostly online, when evaluating a loan or repayment schedule, Kabbage takes into account not only data points from a company’s balance sheet, but also their performance across different sales channels:
“We are a very data-driven company and have won many customers for a long time, based on whom we have created our models,” he says. Repayments and interest are calculated on a simple scale, depending on the amount and the period over which you will be repaying. The online calculator is Here.
According to Frohwein, this approach, based on actual customer data over time, has resulted in Kabbage actually generating a very solid return on its loans. “Our retention rate is extremely good at the moment. We had to work hard on that, both with the lenders’ data sources, to confirm that we wanted to get even better. ”He says the bad debt rate is currently“ in the low single digits. We are pleased that we can identify good customers in the front end and manage them in the back end. “
Still, this is still a largely untapped opportunity for Kabbage and the rest of the industry. Frohwein estimates that around 15-20 million online businesses are currently in need of capital, but online lending platforms have only served around 150,000 in total. With around 25,000 active customers, Kabbage is the largest of all.