Kabbage, a billion-dollar start-up that has become a key lender for small businesses in the United States, announced Thursday that it has raised $250 million in venture capital from SoftBank Group. The funding brings Kabbage's total equity funding raised to nearly $500 million.
With this investment, Kabbage — a company that combines machine-learning algorithms, data from public profiles on the internet and other factors to rate and then loan small businesses money — will expand its lending products and services. It will also use the capital to accelerate its SaaS platform that powers online SMB lending for global banks and expand into more overseas markets in Europe and Asia. Currently, the company is in Spain, the U.K., Canada and Mexico.
Founded during the financial crisis by Rob Frohwein, Marc Gorlin and Kathryn Petralia, friends who had experience with technology and start-ups, the Atlanta-based company has disrupted the online lending market by providing fully automated funding to small businesses in just minutes.
Kabbage's technology lets it make loans and extend lines of credit — ranging anywhere from $2,000 to $150,000 — more quickly and with less complexity than traditional lenders. According to CEO Frohwein, a former intellectual property attorney, customers can get a loan in as little as seven minutes. The company is able to do this by pulling data from social networks, online sales, accounting information, shipping documents and dozens of other public sources to gauge risk and creditworthiness of a business.
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Besides direct loans and lines of credit, it also licenses the Kabbage platform to other financial institutions to provide automated funding to their own customers, including ING, Santander and Scotia Bank.
Currently, Kabbage serves 115,000 small businesses in the United States and has provided more than $3.5 billion in funding to small and medium-sized companies, Frohwein said. Its average loan size ranges from $5,000 to $15,000, but interest rates are high, depending on a host of factors, including how short the term repayment period is and the borrower's creditworthiness. Frohwein says interest rates average a whopping 30 percent to 37 percent.
According to Frohwein, SoftBank looks for businesses that are disrupting industries in a big way and was attracted to the company's technology and business strategy. The goal is to tap global markets and diversify Kabbage's offerings into other financial services, since customer engagement is so high. On average, customers engage with Kabbage 20 times over a three- to four-year period.
David Thevenon, SoftBank's managing director, said: "We invested in Kabbage because their unique automated lending platform leverages open data networks and best positions them to empower small businesses around the world."