Kabbage Keeps Small Businesses Growing With Real-Time Access to Capital

In a Nutshell: Kabbage offers cash flow tools to small business owners who need access to lines of credit, business checking products, and payment processing systems. American Express acquired Kabbage in 2020 and expanded the number of services the company offers to SMBs. And many business owners leverage Kabbage lines of credit to fund sign-on bonuses and other perks to attract top talent from larger competitors.

Job postings are near record highs as businesses across America struggle to meet their staffing needs. The most talented workers look to leverage their skills by looking for the jobs with the best perks.

That often leaves SMBs out of the hiring race. With fewer resources when compared to big-business competitors, small business owners typically can’t afford to offer large sign-on bonuses or other premium perks to new hires.

But Kabbage wants to help those hard-working entrepreneurs even the playing field. Since 2008, Kabbage has offered cash flow solutions and real-time funding for businesses of all sizes. With a Kabbage line of credit, business owners can offer bonuses and other financial incentives to attract the best talent and grow their business even faster.

“The preponderance of small businesses don’t have access to a good real time funding solution,” said Kathryn Petralia, Co-Founder of Kabbage. “So that’s what made it so special for Kabbage to enter the market. We’ve since expanded our services to include things like checking accounts, payment processing, invoicing, and bill pay.”

This one-stop, cash flow source entered the fintech space in an unconventional way. Co-Founder Rob Frohwein came up with the funding solution idea while studying eBay’s public API in 2007. He browsed the seller and transaction data and thought that the same technology could help underwrite small business loans.

“It had nothing to do with us sitting around, trying to start a business and couldn’t get funding,” Petralia said. “It was a really interesting technology solution to a problem that already existed.”

The early Kabbage team started with funding for eBay customers and later expanded to more eCommerce clients. By 2015, around 90% of the company’s borrowers were brick-and-mortar business owners.

The company surpassed Chase to become the second largest PPP lender by total number of loans in the US — behind Bank of America. That caught the attention of American Express, which acquired Kabbage in October of 2020 to strengthen its already stellar SMB services.

Kabbage made a name for itself by offering fast, transparent, real-time business loans, but the company is more than just a lender. Businesses can control their finances from startup to retirement with Kabbage’s simple business checking accounts, payment processing, and other cash flow tools.

“One of the first things business owners do when they start a company is get a business checking account,” Petralia said. “That allows us to serve customers earlier in their lifecycle, because, for a line of credit, you really need to see some sort of financial history, which you don’t have if you just incorporated two weeks ago.”

Petrailia noted that Kabbage can help track revenue growth through the checking account, which helps determine any offer a business owner may receive for a line of credit.

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“If you start with us, you might have a $25,000 credit line,” she said. “But as your revenue grows, we can scale it up to $50,000 or more. You can scale within the products in the checking account.”

Businesses can also have a faster way to be paid, all tied to their company’s transaction history by using Kabbage’s affordable payment processing tools. Through the payments interface, the company can personalize payment offers and take cash-flow actions based on transaction history data.

“All of these products work together to help customers manage their cash flow,” Petralia said. “ Most small business owners don’t have a CFO, they don’t have an MBA with a concentration in finance, but they have to spend a lot of time doing a job that they usually aren’t trained to do. Our goal is to make it easier for them and to save them time.”

When a company grows as quickly as Kabbage, it’s only natural that the competition takes notice. But the firm’s acquisition by American Express wasn’t something that happened overnight.

“We’ve known American Express for a long time,” Petralia said. “I’ve personally been working commercially with American Express on various fintech startups since 1999. So it made a lot of sense for us to partner with, and to become part of, the company that serves more small businesses than anyone else in the US.”

The American Express partnership has enabled Kabbage to increase its funding capabilities, product releases, and exposure to small businesses throughout the country.

“They have a strong focus on small business, and they have a similar culture,” Petralia said “They care a lot about colleagues, a lot about their customers, and it was just a natural fit.”

The American Express partnership also means Kabbage is not exclusive to small businesses. While the number of clients the company serves has exploded in recent years, Petralia noted that Kabbage can still serve both large and small businesses deftly by understanding the changing needs of each client.

“If you have 500 employees and $100 million in revenue, you have different needs from a financial services provider compared to when you have five employees and $100,000 in revenue,” she said.

Companies that offer the best perks typically attract the best talent in today’s competitive environment. Business owners understand that those perks cost money. Small business owners know that paying for perks takes away from other operational or inventory needs and can slow growth.

That’s why many SMB owners use real-time credit offers from Kabbage to access the capital needed to secure new employees promptly.

Businesses can accelerate growth and make life easier for everyone in the office by adding top talent. And they don’t have to worry about any bias keeping them from a loan because Kabbage fully automates its underwriting process.

“Humans are naturally biased,” Petralia said. “We have a hard time making unbiased decisions. Unbiased decisions made by the algorithm are better and more equalizing. It democratizes access to capital.”

Those transparent guidelines for applying for loans and other cash flow tools attract a wide range of business owners to the Kabbage platform. Hatmakers, wrenchmakers, and a significant number of minority SMB owners trust Kabbage to manage their business’s cash flow.

“Studies show that twice as many women- and minority-owned businesses exist in our population compared to the general business population — and there are a couple of reasons for that,” Petralia said. “Probably the most important is that the applicants are more comfortable with the anonymity of an online application.”

That is another reason why the American Express and Kabbage partnership helps the small business community. Both companies base their platforms on assisting SMBs and working to level the playing field to provide millions of American entrepreneurs access to the same tools and working capital that large companies enjoy.

“We just want to understand how our customers are performing,” Petralia said. “We want to understand their general sentiment. And we want to understand how they’re feeling about their business, because I think that really impacts how we serve them. So we can meet them where they are.”