Business loans and lines of credit are nothing new; you’ve likely used one or multiple to get your business off the ground or to fund a growth opportunity. Your local bank isn’t the only place offering such products, as more and more financial technology (or FinTech) companies emerge with great options for you. One such company is Kabbage, which offers a business line of credit up to $250,000. Each draw is considered its own loan, and is paid off over a 6-month term.
They’ve already featured a mobile app that allows you to quickly access funds from the line of credit and transfer them instantly to your business checking account, and recently they’ve released the Kabbage card, which allows you to draw from the line of credit at the point of purchase. These features allow for primo convenience, but at what cost? Here’s a breakdown of the pros and cons of the Kabbage line of credit, card and all.
Good for Those With Bad Credit
As long as you’re bringing in revenue, Kabbage is relatively easy to qualify for; the majority of Kabbage borrowers have a personal credit score of at least 500. It’s always a good idea to check your personal and business credit score before applying, and you can check both of yours for free with Nav. While most business loans and lines of credit require at least two years in business, Kabbage only requires one. In terms of revenue, they require at least $50,000 annually or $4,200 over the last three months at the time of application.
With a completely digital platform, Kabbage takes the paperwork out of the application process. The app allows you to connect your business bank accounts, from which they can measure your cash flow in making their decision. They advertise that the application and approval process takes just minutes, certainly beating out the approval timeline of a typical loan or line of credit.
Between a quick application process and virtually instant access to funds, it doesn’t get much more convenient than Kabbage. After approval, you’ll be able to start drawing from the line of credit right away, and will receive the requested funds within 0-3 business days. Between the app and Kabbage card, access to funds can be just like using a credit card. The Kabbage card feature comes at no additional cost to you.
Just like most any other finance product with lower approval requirements, the interest rate with a Kabbage line of credit is pretty high. Each draw on the line of credit is treated as its own loan, with a term of either 6 or 12 months depending on the amount, and interest rates range from 24% to 99%. That can lead to paying exponentially more in interest than you might pay with other lines of credit or loans. This makes Kabbage a less-than-stellar option for extra-large purchases.
Kabbage’s loan rates are unique in the way they’re charged over the term of the loan. The rate structure is similar between the six and twelve month terms; for a six-month term, you’ll make your principal payments along with paying 1%-10% of the total amount borrowed for the first two months of the loan term, and 1% each month after. For a 12-month term, it’s the same percentage over the first six months, and 1% each month after. Essentially, you would be paying more interest at the beginning of the loan term than at the end.
Because the payment structure loads the interest payments onto the front of the loan term, there’s little incentive to pay it off early, even without the prepayment penalty.
The Kabbage line of credit with Kabbage card wins on convenience, but falls a bit short with the overall cost of use. It’s still good to see that there is a line of credit option for those with sub-par credit, and the product can potentially help build up a healthier credit profile and lead to lower-interest finance options in the future.