The 2-year-old company offers working capital, or small loans, to people who sell products online, whether it's handmade jewelry on Etsy or wholesale SD cards and iPhone cases on eBay. Kabbage got a financial boost itself this week, raising $30 million from Thomvest Ventures and existing investors to expand its business.
Very simply, Kabbage arbitrages the rate it pays for its own debt financing and the rate it lends out anywhere from $500 to $40,000 to entrepreneurs to buy inventory or the supplies they need to make handmade products to sell online. Kabbage customers get six months to pay back the money with interest that ranges from 2 to 7 percent depending on credit score and store revenue. Which gets to another Kabbage requirement: You have to prove that you're already making money selling your must-have product or products. It's not Kickstarter, and new sellers need not apply.
And it can't be just some homegrown storefront. You have to sell your inventory via eBay, Amazon, Yahoo Shopping, Etsy, or use storefront tools like Shopify, Magento and PayPal. That's because Kabbage uses your seller history and reviews to help figure out how much money it should give you.
Seller reviews are just one metric the company uses to make its lending decisions. "We probably know more about any given business than any other company has known about a small business, ever," brags Kabbage co-founder Kathryn Petralia. "We look at transactional data, QuickBooks entries, UPS shipping history, payment processing, and bank account activity to get a much better picture than banks get from just financial statements."
Petralia says Kabbage found a gap in the financing universe because it's not cost-effective for many banks to make loans less than $100,000, given all the expensive human labor each loan requires. But since Kabbage uses an automated system to assess a business' investment risk, it can lend very small amounts and still make money, Petralia says. Kabbage says it currently bankrolls $800 million in annual small business sales with its loans, and that most Kabbage customers take 10 advances per year.
It's using a portion of its own $30 million advance to go international. Expect a lending service in the United Kingdom later this year. Also look for Kabbage loans to start aiding merchants with physical storefronts. "We're trying to get away from the terms 'e-commerce' and 'offline business,' and just focus on commerce," says Petralia. "We feel that anywhere a merchant interacts with the internet, whether that's selling inventory online or using the internet to bring customers to a physical storefront, we can help."
Geek's Guide to the Galaxy 19 Sep, 2012
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Source: http://feeds.wired.com/~r/wired/index/~3/auyOMCOlpDI/
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