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Fingerprint Underwriting: Kabbage's Secret Weapon

Since the turn of the calendar, Kabbage has bean named one of Fast Company’s most innovative companies, raised $75 million in debt facility and won first place in the Best B2B Innovation category at PYMNTS.com’s The Innovation Project 2013.

Not a bad start to the year for a company that’s increasingly being recognized as one of the most innovative players in the business lending space.

How has Kabbage managed such success as of late? Market Platform Dynamics CEO Karen Webster spoke with Rob Frowhein, CEO and founder at Kabbage, to find out.

According to Frohwein, Kabbage has grown so quickly in part because of its decision to expand its merchant base. While Kabbage originally targeted merchants that sold over markets such as eBay and Amazon, they’re now financing companies that don’t directly sell online as well.

“We’ve been moving boldly in to spaces that also incorporate merchants that don’t necessarily sell online but do leverage Internet channels or data relationships with third parties that allow us to tap into data and fund those small businesses, as well,” he said. “That has been one of the reasons we’ve been growing so fast."

Despite the increase in Kabbage’s merchant base, Frohwein says his company’s basic philosophy - and the niche they fill in the lending industry - really hasn’t changed. Kabbage still takes advantage of a banking environment that’s ill-suited to meet the needs of many small businesses, handing out smaller loans that lead to repeat usage and appeal to a wide variety of merchants.

“Traditional banks haven’t found a way to finance small businesses because they’re not set up to handle small businesses that need $10,000, or $20,000, or $25,000; they’re set up for small businesses that need $500,000, $1 million, or $1.5 million,” Frohwein said. “So, it’s not usually a model that works, from a profitability standpoint, for a bank.  You really have to create a system like we’ve created at Kabbage to address this market.”

Frohwein said that Kabbage addresses the needs of the small business market by refusing to simply place every company into “give loan” or “no loan” boxes. Instead, whether a company should get a loan, what kind of loan they should receive and how much they can get should be determined on an individual basis.

“I think the future of small business financing is what I call fingerprint underwriting, which is being able to specifically target the small business where they are in their life cycle, what they sell, how they operate, how they treat their customers, and how their customers view them, and tie that to a product that finances them based on that criteria,” Frohwein said.

“You will have a much better experience overall because the small business will get the exact product it needs and deserves, and you will experience a kind of repayment likelihood that you can optimize.”

To hear more Webster and Frohwein on Kabbage’s recent moves, listen to the full podcast below.

 

*If you have trouble with the audio player above, click here.


Rob Frohwein

CEO and Founder, Kabbage

Rob founded Kabbage to get small businesses capital quickly, an area in which banks have long struggled. He believes deeply that small businesses are at the core of economic development around the world. Rob's also a 3-time author, former co-host of a radio show, inventor with more than 30 patents and applications -- and the owner of a lifetime pass to the Baseball Hall of Fame. Favorite small business: Bull's BBQ at Citizen's Bank Park, owned by former Philadelphia RobPhillie Greg Luzinski.

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