If you have short term working capital needs, Kabbage can be a pretty effortless way to get instant cash. It is a competitive option to credit cash advances. 5 minutes after I started the application, the money is already on the way and the cash is deposited in my bank account the next day. The efficiency is amazing but you pay a price for it. The cost for Kabbage loans is higher than the online term loans but is at the lower end for cashflow loans.
The Application
First, I clicked on “Get Started Now!” to get started on the loan application.
Next, I put in the basic information about my business. The business was started in 2013 so it’s only about a year old.
It asked me to connect to one of my financial accounts. I clicked on Chase.
I logged into my Chase account.
I picked the business account for Red Rover Properties. I own a handful of businesses. This particular business has bank balance of $100K and net cash flow about $3,000 per month.
I got to the last step to put in my personal information.
It tried to verify that I am me.
I am ready to get cash. I qualified for $50,000 and the total cost of getting the loan will be 10% of the loan value. I will pay 3% for the first two months and 1% for the last 4 months. I will just get $2,000 to test this product out. I clicked on “Get Cash”.
I need to specify which account the cash would go to.
So I logged into Chase again to specify the account.
Then I confirmed I am getting the cash!!
I have to accept the loan agreement.
The money is on its way to my bank account.
WOW! The whole application took me like 3 minutes. It didn’t ask me anything about tax returns, bank statements or financial statements. I got the money the next day. In terms of efficiency, Kabbage is unbeatable.
APR for Kabbage
I have excellent credit scores (750+) and a very healthy cash flow on my bank accounts so my net cost is 10%. Using the Kabbage APR Calculator below, the APR turns out to be 34.27%.
According to the Kabbage website, their fee for the first two months is between 1-13.5% while the last four months is 1%. That’s equivalent to an APR of 20.29% – 113.65%. There’s no origination fee and no prepayment penalty. If I decide to pay my loan back in full 2 weeks later, I only need to pay $2,060 (the loan amount + 3% interest for the first month). This is much better than most other daily ACH loans or merchant cash advances, where, if you decide to pay back early, you still have to pay the full contract amount.
In my case, 3% of the advance amount is comparable to taking up a credit card cash advance, and Kabbage let me advance up to $50K, which is higher than the cash advance limits for most credit cards.
Kabbage vs. Other Short Term Lending Options
The following table compares the Kabbage Loan to other short-term financing options we’ve written about. Kabbage is more expensive than LendingClub Business Loans but is pretty competitive with credit card cash advances, and it’s cheaper than OnDeck and merchant cash advances. For LendingClub Business Loans, you will need to submit your bank statements and tax returns and wait for a few days to get the loan processed. Your business also has to be 2+ years old and have $100K revenue, which my business wouldn’t qualify for. In comparison, Kabbage only uses cash flows, bank balances and credit scores for underwriting. I am amazed that they are able to make the decision so swiftly without needing me to talk to anyone or submit any documentation before sending the money over.
| Kabbage | LendingClub Business | Credit Card Advance | OnDeck *** | MCA | |
|---|---|---|---|---|---|
| Repayment | 6 months | 12 months | 6 months | 6 months | 6 months |
| APR | 34.27% | 11.71% | 32.11% | 88.69% | 115.84% |
| Cost of a $10K Loan | $1,000 | $645 | $957 | $2,307 | $3,289 |
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Do you know the true cost of a loan? |
Conclusions
Overall, Kabbage is a very competitive loan product focused on efficiency, and is friendly to less established businesses. The prepayment mechanism is also very fair compared to other short term loan providers. The cost is higher than a bank loan or online term loan though. Kabbage can be a good option if you need fast funding or are not established enough to get an online term loan or an SBA loan to meet your capital needs. Finally, I want to stress that the fact that you can get the money easily doesn’t mean you should. You shall evaluate your business and make sure this cash infusion will actually help your business and make a positive ROI before taking up an advance.
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