The Math Behind Nav’s Kabbage Loan Calculator

The Math Behind Nav’s Kabbage Loan Calculator

This is the fourth installment of our calculator math series. Previously, we talked about the math behind our Merchant Cash Advance Calculator, Business Term Loan Calculator, Daily Debit APR Calculator (aka. OnDeck APR Calculator). Today, we will be talking about how our Kabbage APR Calculator works.

Kabbage offers 6-month working capital loans to small businesses. Their user experience is superb while the APR is not outrageous (close to standard credit card cash advance rates if you have good cash flow and decent credit) and there’s no prepayment penalty compared to merchant cash advances and daily debit loans. Overall, it’s a solid product.

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A Kabbage loan is structured as follows. Say you borrow $X dollars. Kabbage will assess your risk and determine a risk premium of Y%. You will pay (1/6 + Y%) $X for the first two months and (1/6 + 1%) $X for the next four months. It’s straightforward to understand what the total financing cost will be, which is *(2 Y + 4)% of $X**. It’s a bit more complicated to calculate the APR. You basically need to use a spreadsheet to do it but Nav simplified into a calculator so you can do this very easily.

Here is how the math works

The math can be described in one sentence actually. It’s the following Excel formula!

*=IRR(-(Loan Amount), (1st & 2nd Payment), (1st & 2nd Payment), (3rd – 6th Payment), (3rd – 6th Payment), (3rd – 6th Payment), (3rd – 6th Payment)) 12**

Does it sound too easy to you? I personally appreciate the simplicity of Kabbage loans. It’s just might be a tad expensive at times!

Kabbage vs. OnDeck

Now, let’s compare two of the most popular working capital loans in America — OnDeck vs. Kabbage. I will use the 3% example for Kabbage. Previously, I have been using 20% interest for an OnDeck loan. I will use a different example for OnDeck today. I have heard through the grapevines that OnDeck now gives business owner who have established businesses and good FICO scores 9% interest over 6 months. The key is that you have to go to them directly. Don’t use a loan broker / funding advisor. Brokers stack their fees on top of your risk pricing.

Again, pictures are worth 1,000 words. Here is the comparison of a $30,000 loan from Kabbage vs. OnDeck!


As you can see, the OnDeck 9% product is about 10% higher than Kabbage in terms of the total financing cost. But in terms of APR, it’s about 10 percentage points higher. It’s partly attributed to the daily compound and partly attributed to the origination fee which Kabbage doesn’t charge. Business owners should make the decision based on the pricing and the amount they actually get approved. If I get approved for the same amount and the same total cost, I would personally pick Kabbage because their prepayment policy is a lot more reasonable compare to OnDeck. But I will also go beyond these two and check out the online term loan providers like LendingClub and FundingCircle. Their pricing can potentially be even more favorable. Bottom line: use Nav’s business loan calculators to figure out the cheapest option!!


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