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If you’re a small business owner looking for a line of credit to expand or improve your company’s operations, you might’ve seen part one of our series on working with Kabbage, an online lender known for their ease and speed.
But now you might be wondering… How does the underwriting process for Kabbage work?
Makes sense: When applying for a business loan or line of credit from a traditional institution like a big bank, there’s usually a step that involves fleshing out your business operations and financial documents to a representative, who then reviews your application for a few days or even weeks before coming to a decision. This is known as “underwriting.”
Kabbage is a pioneer in an industry of online lenders that looks to address the “small business funding gap,” as banks increasingly focus on large loans to large businesses for longer periods. While Kabbage focuses on serving established businesses (at least one year old, generating $50,000 a year in revenue), these businesses are still often deemed “too risky” by banks that aren’t able to assess their performance through traditional underwriting metrics. Banks underwrite businesses manually—which costs time and labor—so they often focus on larger loans that bring greater profits to cover their expenses. Meanwhile, Kabbage has extended billions in lines of credit (the maximum for each line of credit is $150,000) since 2011.
Kabbage says they see a similar default rate to that of banks, without poring over documents for weeks at a time. Here’s how Kabbage’s underwriting process works so effectively—for both the business owners who apply and the company itself.
As discussed in greater length in the first part of our Kabbage series, the application process here is pretty simple:
Go online and fill out Kabbage’s three-step application, which asks for basic information on you and your business. It also requests that you securely link your financial services (like business checking accounts, transaction platforms, management services) so Kabbage can review your business performance online without requiring you to submit long forms or financial documents.
Submitting this information, along with consenting to a credit check, brings you to Kabbage’s nearly instantaneous underwriting process.
Let’s take a look.
When you securely link your business accounts, Kabbage can instantly review your information. This process is automated—there’s no one from Kabbage using your login credentials to access your account, and Kabbage can never see or store those credentials. Kabbage says they’ve been linked to over one million data sources, from business accounts to social media platforms, to instantly review their customers.
From your accounts and platforms, Kabbage can review business revenue, recent transactions, and other performance indicators (not just your FICO score) to get a picture of how your business is doing. With this information, their algorithm decides the eligibility and terms of—or “underwrites”—your application.
During the application process (and even after you’ve submitted), Kabbage encourages you to link as many business accounts, containing the most revenue transaction data, as possible. Any account you use for business—business checking accounts through your bank, payroll solutions like QuickBooks, online platforms like Etsy or eBay, or payment services like Square—can be linked.
This makes it easier to assess the performance of applicants: imagine trying to paint a picture of a landscape with just one or two colors—a whole palette would be best.
Kabbage also encourages linking your social media accounts. By linking a Facebook or Twitter account, Kabbage’s technology can measure engagement via number of followers and activities, to see how people interact with and respond to your brand. This also could be taken into account when determining funding.
Yes! Because underwriting is all automated, it can literally be done in a fraction of the time that it takes manual, traditional underwriters. The next step is to receive and translate your offer, which can lead to quick funding, so the money you need is in your account the next day.
Read up on how to finalize your Kabbage experience, including withdrawing money on your line of credit, paying it back, and continuing a fruitful lending experience with them into the future in the third part of our series. To learn more about Kabbage, check out Kabbage reviews.