Alternative Finances

Kabbage CEO: SMB Working Capital Needs Don’t Fit ‘Bankers’ Hours’

Bankers’ hours — that eight-hour block of time between 9 a.m. and 5 p.m. — are a bit of an anachronism in 2018, Kabbage Co-founder and CEO Rob Frohwein told Karen Webster in a recent conversation. The concept persists, he noted, even though almost no one in the workforce keeps bankers’ hours anymore.

“I honestly don’t even know what era bankers’ hour are a vestige from,” Frohwein said. “What I do know is that our world has changed so much, that those types of archaic terms should no longer be around.”

Perhaps they would all but disappear, except that bankers continue to keep bankers’ hours, even though businesses — and small businesses in particular — don’t run on the same Monday through Friday, eight-hour clock.

It’s a point that Frohwein said Kabbage can back up. New data from Kabbage shows that 20 percent of the working capital provided to SMBs was accessed by those businesses off hours: between the hours of 6 p.m. and 6 a.m. on weekdays and on weekends.

What SMBs Do While The Rest Of The World Sleeps

Today, Kabbage is celebrating a big milestone: providing approximately $5 billion in funding to its SMB customers across the U.S. since its founding in 2008. On the lead-up to today, and upon taking a closer look at the data underlying this funding, Frohwein noticed a pattern to how the funds they provided were being accessed.

“I see all this capital going out on nights and weekends, and I wanted to dig deeper — to take a look at how much capital is being tapped during those ‘off’ hours,” Frohwein said.

That’s when, he said, that the team discovered something surprising: Roughly 20 percent of the dollars loaned out (around $1 billion), and 30 percent of the funds they provided, had flowed into SMB bank accounts during those off hours. Specifically, Frohwein said, they found that 64 percent of after-hours fund access happened during the work week, between the hours of 6 p.m. and 6 a.m., totaling $754 million. The remaining 36 percent happened on Saturdays and Sundays, totaling $429 million.

“When we added up the numbers, even we said ‘holy mackerel,’” Frohwein remarked.

The 24/7/365 Life Of An SMB

Exclamation of surprise aside, Frohwein told Webster, the data Kabbage is releasing today on SMB after-hours borrowing habits is a small part of a larger trend they’ve been observing in the decade that they’ve been operating. People say that small businesses run 24/7/365, but they actually do. When small business owners are finished doing their business, they turn to running their business. That means SMBs may need to tap into working capital when they can get it, which doesn’t fit neatly into a 9 a.m. to 5 p.m. world.

“Small businesses operate in real time, and often, when they have a need or a chance to save on something or buy something, they need to take it,” Frohwein said. “If a small business can’t complete a transaction when they want to, they often don’t get a second chance.”

That, he said, isn’t just about convenience — not having access to working capital at that time is the same as taking money out of their pockets.

The goal is to put money into the SMB’s account when it’s needed, relying on technology and underwriting models that efficiently make lending decisions, onboard the business, then push money into their account in real time. All that so the business owner can spend less time chasing money and more time running their business.

Frohwein said, “If you are a baker, presumably, you did that because you are good at baking, which means you should be spending as much of your working life doing that, and as little running after the books and the corresponding issues. We want to let the bakers bake.”

The SMB Outlook

The bakers, according to Frohwein, are in fact baking — across the SMB marketplace, when looking at the merchants Kabbage serves, there is a great enthusiasm and bullishness about the future.

It’s enthusiasm that, Frohwein said, is not a case of misplaced optimism — since Kabbage’s lending platform hooks directly into the back-end system of the merchants it underwrites to get a clear, real-time snapshot of how the businesses are performing. SMBs across the board seem to be doing well.

“There isn’t a divergence between performance and perspective; those two things remain aligned. That’s good, and we pay close attention to it. Right now, what we are seeing is these businesses are bullish because they are really walking the talk,” Frohwein said.

Moreover, he noted, the businesses that are seeking funding are, overall, looking healthier — like successful SMBs seeking working capital for expansion — and they are seeking more funds.

“At this point, $25,000 is our average credit line, and the average loan is about $7,500. But our customers also borrow on average six times a year, so that comes about to around $45,000 per year that they are borrowing,” he said.

Thing can always change, Frohwein told Webster, and Kabbage is prepared for a time when SMB enthusiasm is less full-throated. But for now, with loan volumes increasing and a portfolio he referred to as “incredibly solid,” the goal is to make sure SMBs can not only access funds, but be certain to have access to funds at any time they need them.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.