Kabbage Links Social Media With Cash Advances
How much is a Tweet or a ‘Like” on Facebook really worth?
For some small business owners, it could mean having the much-needed funds to grow a fledgling shop.
Kabbage Inc., an Atlanta-based provider of working capital for online merchants, said it has a model that marries social media and loyalty in an effort to potentially attract, interact with and retain small business customers.
Launched in September, its Social Klimbing program connects Kabbage account holders to existing or new Facebook fan pages and Twitter feeds, which are immediately analyzed and translated into additional capital, the company said. As merchants increase followers, activities and chatter on Twitter and Facebook, they will automatically gain access to more funds.
Small businesses who use Social Klimbing receive a merchant cash advance called a Kabbage Advance, said Marc Gorlin, chairman and co-founder of Kabbage. From a regulatory viewpoint, the advance is not a loan or bank product, he noted, comparing the advance to the way a home equity line works.
There is no interest paid on the Kabbage Advance and businesses do not pay a prepayment penalty, according to the company. Gorlin said there is a fee based on how long a business keeps the capital, which can range from one to six months.
“A lot of small businesses get looked at based on just a credit score,” Gorlin said. “We’ve found that the most telling way is how a business is performing.”
Indeed, Kabagge generally would like to work with businesses that have been selling for a year or more, however, there are exceptions, Gorlin said. By looking at a track record of sales, the company has been able to draw on some interesting lines. For instance, there appears to be a much bigger risk to giving capital to businesses based on just credit scores.
“Our numbers are incredibly low on defaults and delinquencies,” Gorlin said. “A lot of that has to do with the data we look at. People who’ve added Facebook and Twitter tend to be much less delinquent.”
Since its launch in 2009, Kabbage has provided 30,000 businesses with a total capital of $22.5 million, according to the company. North of 30% of the funding has come through the Social Klimbing program, Gorlin said.
Kabbage offers lines from $500 to $40,000. After initially offer between $2,000 and $12,000, Gorlin said the company is currently testing lines up to $100,000. The rates vary depending on the size of the advance. Gorlin said funds can be in a user’s account in less than 10 minutes.
To set up an account with Kabbage, a business owner has to submit information, including where they sell their inventory, the type of payment service used, and business and personal information.
Gorlin said the types of businesses that have used the merchant cash advance cover a gamut, from makers of Native American jewelry and toy and model trains to firms that produce wigs for cancer patients.
As more players enter the credit union space to compete within the small business market, Gorlin said Kabbage is not a competitive threat. Rather, the company would like to offer cooperatives and automated option to serve this group.
“We see a lot of our customers dealing with credit unions. I think it’s because they’re more equipped to deal with small businesses,” he offered. “What we want to do is eventually help banks and credit unions that are already serving them but not providing the capital.”
Looking ahead, Kabbage plans to go more granular, Gorlin said. That means the company will look at behaviors such as how often one Tweets.
“With Social Klimbing, small businesses can–for the first time–benefit from maintaining and growing relationships with their customers through Facebook and Twitter,” said Kathryn Petralia, Kabbage co-founder and chief operating officer.