Private Investment Fund Bankrolls P2P lender Kabbage

Kabbage, a small business lender with ties to UPS as an investor, has closed a $270 million credit facility with Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners.  In the scheme of things, $270 million is a drop in the bucket in the proverbial ocean of trade credit.

This type of investment continues the trend of Non Bank investors, or the shadow banking market,  investing in trade credit receivables.  In fact, in our view, these investors are hungry for assets to finance.  But why Kabbage? As P2P lending models go, Kabbage is trying to take data on merchants of various B2B commerce sites (eBay, Paypal, Amazon, etc.) and leverage that data to tie in finance.    What Kabbage does is links your loan to your B2B account (part of the condition to get the money) and they take money out of your Paypal or other B2B account  based on the agreement you sign with them.

So far Kabbage has advanced over $200 million to help small businesses grow.  Kabbage’s investors haves some real depth, including UPS Strategic Fund and David Bonderman (director for Burger King, and Caesars Entertainment).

Customers of UPS can also integrate their account information within their Kabbage account and potentially raise their Kabbage advance amount for additional financing resources.

Their website claims that unlike traditional lenders, they look at your real-time data, not just your credit score.  Lines are advanced up to $100,000 with a maximum length of advance of 6 months.  They have a neat sliding calculator where you can adjust advance amount and length of term (up to 6 months) to determine cost of advance.

Our Take

I love the innovation, the combination of data and speed, but let’s not forget; when you make loans, you want to be paid back.  And Kabbage is no different.   Here are three things to bear in mind:

  • By signing a loan agreement, you give Kabbage access to your B2B account.
  • Users of Kabbage have commented that they use Kabbage with products that they know will sell.  The product you buy with Kabbage money must sell fast so that you can pay your advance off quickly.  
  • Also, make sure you do the math and figure out the true price of money using an Annualized Percentage Rate.  It will give a more realistic view of the true price of money.

Still, I wonder why the likes of Amazon, eBay, and other B2B platforms dont go the route of Paypal and do this themselves.  See PayPal’s captive small business lending program

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