Kabbage Hits Purple Patch, IPO Could Someday Sprout

by Shelton on December 9th, 2014

filed under Online Business Credit

Online business-credit provider Kabbage Inc. said it has increased the pace of its cash funding to small businesses to over $1 million a day, according to Chief Executive and Founder Rob Frohwein.

The Atlanta-based startup, founded in 2008, last year provided $200 million in cash credit lines to small businesses, including Amazon, eBay and Etsy vendors, he said. Kabbage uses metrics including social media such as Yelp ratings and bank or PayPal account activity to determine how much and at what rate to offer financing.

Mr. Frohwein said that Kabbage will provide “hundreds of millions” in new credit lines this year, and has set a goal of $1 billion next year.

If met, that would put it in the ballpark of other fast-growing online financers including Lending Club, which makes personal loans, and rival business financer OnDeck Capital. OnDeck has provided $900 million since 2007, according to its website, while Lending Club has exceeded $3 billion since 2007, the company said.

The practice of using social media and other web metrics in lending is still new, and some consumer advocates say there are privacy and other concerns, the Journal has reported. (Read a discussion of some users experiences here, at website CreditKarma.com.)

Alternative financing for consumers and small businesses, which became more scarce after the financial crisis as banks and credit card providers dialed back, has been a theme in the IPO market recently.

Santander Consumer USA Holdings Inc., which makes subprime auto loans and is moving into consumer loans, went public in January. Springleaf Holdings Inc., which has branches that make subprime personal loans, went public in October. Both have seen their shares rise. Lending Club has said it is preparing for an IPO this year.

Mr. Frohwein said an IPO was an option for Kabbage too, but not until at least 2015. “We’re not planning on filing for an IPO this year. Right now we’re focused on building ,” he said.

“I think it’s a situation where we’ve got to figure out what makes sense for the company. [An IPO is] a possibility, but it’s not something we’re planning on doing over the next 10 or 11 months,” he added. “We will definitely raise more money as it’s needed to expand. … There’s certainly an appetite in the market for companies who are looking to do this.”

Kabbage launched its automated online platform in 2011. It gets the money to fund the credit lines from equity investors and its own debt.

It has raised $56 million in equity capital so far, according to Mr. Frohwein. It was initially from angel investors, who included David Bonderman, co-founder of private-equity firm TPG, and Warren Stephens, chief executive of Little Rock, Ark.-based investment bank Stephens Inc.

Venture-capital firms BlueRun Ventures, an early backer of PayPal, and Mohr Davidow Ventures have also invested, and Chicago-based investment firm Victory Park Capital has lent Kabbage money.

Kabbage also secured an infusion from United Parcel Service Inc., with which it works to offer funding to non-online small businesses, said Mr. Frohwein. It also partners with small business software maker Intuit Inc., he said.

What Kabbage provides are not loans, they are “merchant cash advances. Kabbage is not an FDIC-insured bank, and it is regulated by state authorities. Mr. Frohwein said that Kabbage is exploring partnering with a bank to potentially provide traditional loans, which can be for larger amounts and can be re-sold to other investors.

The typical credit line is about $10,000 to $20,000, said Mr. Frohwein, often withdrawn in small chunks. Businesses pay more the longer the credit is outstanding, with rates ranging from 2% to 20%, he said.

Rebuilding credit WITHOUT using credit cards

by Shelton on December 9th, 2014

filed under Credit Scores

Credit cards can be a polarizing subject. Many Americans love them for their security and convenience, but these very same qualities lead many cardholders into debt. After becoming overextended, cardholders may miss payments and find themselves with ruined credit.

So the last thing these people need is to try to rebuild their credit by using more plastic. Thankfully, there are several ways to

improve your credit profile without using credit cards


1. Use charge cards.

A charge card is like a credit card, but cardholders are expected to pay off their balances in full each month. But like credit cards, charge cards report cardholders payments to the three major consumer credit bureaus, which can improve cardholders credit when they make timely payments. Charge cards are often issued by individual retailers to shoppers with average or even below-average credit.

2. Utilize other types of loans.

Credit cards are just one type of loan that is included in a consumers credit report, but it is not the only one. Timely payments on home mortgages, car loans, student loans and lines of credit are also ways to improve ones credit history. So while you should not deliberately incur more debt to improve your credit history, having even a small loan on your credit report can go a long way.

3. Credit builder loans.

There is another type of loan that is specifically designed to help individuals rebuild their credit histories. Credit builder loans are small loans offered by some credit unions and banks to those who are trying to rebuild their credit, but the trick is that the borrower essentially makes the loan. First, the borrower deposits a small amount with the lender, which goes into an interest-bearing account. Then the lender uses this deposit as security against a small loan it offers. Once the loan is paid off, the borrower receives his or her deposit back. In the meantime, the borrowers payments are reported to the major consumer credit bureaus, just like any other loan.

4. Pay off as much debt as possible.

Consumers should never underestimate the beneficial effect of paying off their debts, especially when they have a high ratio of debt to available credit. In these cases, paying off debt helps their credit score without using credit cards.

5. Keep accounts open.

You dont have to use a credit card to have an open account help your credit history. Rather than closing a credit card account, simply pay off any remaining balance and destroy the card. Of course, there is always the risk the issuer will close the account if you dont use it, but if that does not happen, the credit line will continue being reported with a zero balance toward your available credit.

There are two catches to this one that you should be sure to watch out for. First, make sure that you continue to monitor these accounts for signs of fraud. And also, if your credit card has an annual fee, this may not be worthwhile.

6. Examine your credit report.

Many credit reports contain errors. Because credit scores are derived from information in your credit reports, an error could result in a lower score than you would otherwise have. All Americans are entitled to a free copy of their credit report each year, and are given the opportunity to dispute any errors. (You can also see your credit scores for free at Credit.com, and the scores are updated monthly.)

7. Have rent payments reported.

Those who rent their primary residence will miss out on the benefit of having their mortgage loan payments reported to the credit bureaus, but it is still possible to have rent payments reported. Landlords can opt in to systems that collect rental payment data. Just make sure you pay on time and in full every month.

More from Credit.com

How Do I Improve My Credit Score Without Debt?
The Lifetime Cost of Debt Calculator
How Much Debt Is Too Much?

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