The assumption that governs commerce in the 21st century is that money is, and should be, easily moved. And, for the most part, on the consumer side of transactions that is true in the developed world to the extent that the ability to quickly and easily move money from “point A” to “point B” can be taken for granted as a background condition for doing business.
But efficiency is still far from an assumption for businesses trying to easily access and distribute funds - especially small businesses. There are many factors at play exacerbating this problem. Many SMBs face revenue volatility, particularly those on the supply side of B2B commerce that often face funding long lag times between goods and services rendered and payment for said goods and services.
That is problem that could theoretically be addressed by access to credit for SMB - but for the last half decade, tightened lending requirements have severely cut access to loan dollars for small and medium-sized business - particularly new and emerging ones that lacked significant credit history.
The good news for small businesses who’ve seen their access to credit (and thus prospects for expansion, and/or survival) severely limited in the last 7 or 8 years is that the market cannot stand a vacuum — and so a variety of alternative lending/financing platforms have emerged to help fill those capital holes.
And while the ability to leverage alternative lenders like Kabbage or CAN Capital - or P2P platforms like Funding Circle or OnDeck - represents an improvement to business conditions for many small firms, those same SMBs still face a problem after they’ve found access to capital.
They still have to use that money - which is going to require a few more steps and create the sort of drag on efficiency that alternative lenders are hoping to circumvent.
“What ends up happening today for most businesses in terms of actually getting a line of credit and drawing money is that they will then have to move funds into their corporate checking account,” Kabbage’s Head of Product Jason Dell told PYMNTS in a recent interview.
“That takes about 1-3 days using a normal ACH process which can cause cash flow issues and force merchants to attempt to think ahead in ways that might be practical or even possible, and that can make doing business difficult for them.”
Kabbage spoke to PYMNTS in advance of the release of the alternative financial service providers' attempt at solving that problem - by giving their customers immediate access to their Kabbage line of credit through a plastic card.
“The card product came about from research with our customer base and the difficulties of accessing their line of credit was a consistently named difficulty we were hearing,” Dell noted. “What we are basically offering small business customers [is] direct access to their account with us, by putting Kabbage in their wallet when they are at the point of sale and they want to utilize their available line.”
Dell noted that this helps a contractor who needs to re-up on supplies, or a retailer that wants to respond to market research more quickly by upping inventory and possibly offering a sale. In both cases, what the customer is looking for is immediate access to funds - which in many cases they aren’t finding easily in the market today.
“We believe that by having the availability of those funds for the consumer, we will be one of the first choices they go to - which helps them utilize their lines of credit more than they have in the past,” Dell told PYMNTS.
And that shift not only makes payments faster — Dell notes it also helps professionalize small businesses, but helps owners stay away from entangling personal and business finances as they try to use personal credit lines to plug holes created by slower than optimal access to money.
“The really cool part is when that gets funded it will get funded as a loan, meaning the funds bring with them the same terms of conditions of the credit line they already have with us. We are now bringing it under the umbrella of a loan they are already very familiar with, and that is very precisely governed through our data platform.”
At the end of the day, Kabbage says that the goal for an alternative lender is bigger than just helping their clients procure funds - it is additionally in creating the best conditions for their customers' success by making them able to use those funds most efficiently and effectively.
“We’re really excited about the Kabbage card and having a new addition to our platform offering, and the things we are able to use next generation data for to move decisions much more quickly.”