It is no secret or surprise at this point that small business lending has been broken since the Great Recession in a way that seems stubbornly resistant to improvement – if you’re a small business looking for capital. Depending on what measure one uses, between half and three-quarters of SMBs either can’t get access to loans at all, or they can, but not at amounts that are sufficient to meet their capital needs.
“Banks are kind of stuck in the 1910’s technology and small businesses are super frustrated by how long it takes to get a bank approval, and also how cumbersome it is,” Kabbage’s Chief Marketing Officer Victoria Treyger told PYMNTs in a recent discussion.
Kabbage is a technology- and data-driven underwriting platform that assesses and underwrites small business loans in real time.
“Kabbage is the only company in the space, either FinTech or alternative finance, that is 100 percent automated. We are using our tech platform to assess risk and determine creditworthiness – and all in real time,” Treyger noted. “Banks, for a variety of reasons, are a little bit behind the technological advancements needed to be able to underwrite small businesses in a reasonable time frame. It’s not that they don’t want to work with SMBs, they just can’t do it.”
The business – like so many of the innovations featured on PYMNTS – was the brainchild of a frustrated entrepreneur – in Kabbage’s case, Founder and CEO Rob Frohwein who, despite running two very successful law firms, couldn’t get a bank loan – including from the banks with which he had all of his relationships. Frohwein’s business was too new, they said, and thus didn’t fit their “traditional” underwriting criteria. Thus, the idea for Kabbage was planted – to create a lending platform that is tied into a company’s now, instead of a company’s past performance data.
“We think this is the wave of the future,” Treyger explained. “We can, in real time, pull in data from accounting records, bank accounts, eCommerce revenues, shipping data – we have access to more data sources and access to them immediately. And because of that, we are able to build a more holistic view of what that owner is really like, and what he or she needs.”
And that real-time holistic view of the data is now a product that Kabbage is ready to share with others – starting with Australia’s Kikka Capital.
Later this year, in May, Kikka will launch as one of Australia’s leading online consumer lenders and Kabbage will power its SMB lending service with its technology.
“Because it is fundamentally a tech platform, it is possible for us to take that platform and license it and leverage it outside of our core business,” Treyger noted of their new licensing agreement with the Australian firm. “Kikka Capital will do all of the marketing and raise the capital that they will extend to the businesses. What we are doing is providing them with that technology platform for a licensing fee that will deliver the underwriting expertise, the real-time data assessment and then continuously monitor the businesses.”
And it is that continuous monitoring of businesses and their accounts that Treyger notes really distinguishes them from traditional players, and allows Kabbage to bring significant value to the space. Kabbage does not assess loan worthiness once – but instead uses its connections to monitor and customize loan products based on a business’ needs in real time.
“Because of this persistent underwriting capability where you are always connected and always tuned into the health of the small business, that is the secret sauce and the key to the strong results we have seen. This is dramatically different than managing risk with five years of tax returns, making a decision and being done. Kabbage is never done monitoring its accounts.”
Or the accounts of its new international partners.
This new deal with Kikka is the first of its kind, Treyger noted, but it certainly won’t be the last. Using the Kikka Capital pair-up as a blueprint of sorts, she told PYMNTS that Kabbage is looking to enter into similar partnerships with banks and other financials in Canada, Europe and Asia in the not too distant future.
“We’re really excited to be doing all these expansions at once. Both moving into Australia, and international and also moving into this new line of business,” she said.
Because Kabbage is ready to license that special sauce to the banks going forward, she says.
“You will see Kabbage more and more start to work with these banks, to provide them access to our tech platform,” Treyger remarked.
When asked if Kabbage was worried if sharing the “secret sauce” with banks which could reasonably be considered their competitors ran the risk of damaging the company’s core loan business, Treyger said that she really didn’t think it would actually be an issue.
“The market is so huge, the opportunity is just so vast, both here in the U.S. and abroad,” Treyger explained. “The estimates are that the market is sized between $100 [billion] to $500 billion in the U.S. alone [and] we actually think that by partnering with banks and companies like Kikka Capital, [that] will allow us to capture more of the market and serve more small businesses.”
She also noted that these businesses already have relationships with their banks, relationships that they like. She says her firm doesn’t want to try to compete with the banks for their customers when it has a better chance of reaching those customers by helping the banks serve them better.
Because the reality is, someone needs to start serving the SMB consumer better. When more than half of small businesses can’t access capital – it is not a good sign for the future health of the sector. Kabbage has a solution that it thinks can most effectively moderate the risk and get more money into the hands of entrepreneurs – a solution that is about to get a test drive down under.
Will it work? So far, Kabbage says the results are strong, and they are looking forward to seeing more success, hopefully in more places.