Kabbage to offer custom loans for as short as three days
The online small-business lender Kabbage said Tuesday that it will begin offering short-term loans to its clients that can be repaid in as little three days.
Until now, Kabbage has offered loans that have terms of six, 12 or 18 months. Kathryn Petralia, its co-founder and president, said that because many customers tend to pay off their loans early, the company has decided to start offering loans that can be repaid within three to 45 days. Customers can choose the terms of the so-called custom loan, which comes with a one-time fee that starts at 0.1%.
“Small businesses are interested in shorter repayment terms,” Petralia said. “Customers can now decide exactly how long they want to keep the money they borrow."
All Kabbage loans in the U.S., including custom loans, are issued by Celtic Bank in Salt Lake City, Utah.
The loans will only be available to customers of Kabbage’s Payments service. Through Kabbage Payments, small businesses create and send invoices to customers and create a URL through which they accept card payments through Kabbage for a 2.25% per-transaction fee.
Kabbage Payments, a subsidiary of Kabbage, is a registered payment service provider sponsored by Fifth Third Bank in Cincinnati.
Custom loan clients can either repay in full when the loan reaches maturity or allocate up to 100% of their Kabbage Payments revenue toward the balance over the selected period. Repayments are only made when a customer processes payments and any remaining balance is due at the end of the term.
Why would small-business owners opt for a custom loan rather than using a credit card? Petralia noted that businesses can’t use a credit card for all purchases and that many small-business owners don’t have business credit cards.
"It’s really hard for most small businesses to get access to these kinds of business products,” she said.
Kabbage will continue to offer new features that help small businesses deal with cash-flow challenges, Petralia said.
Kabbage is funded and backed by leading investors that include the SoftBank Vision Fund, BlueRun Ventures and Mohr Davidow Ventures. To date it has provided roughly $9 billion in working capital to some 200,000 small businesses.