Kabbage's small business finance push counters Square and PayPal

Kabbage Inc. is offering tailored loans to small businesses that have unexpected cash flow needs, hoping to grab a wider share of its clients' relationships.

Square and PayPal both offer small business credit based on payment histories. Kabbage, which has traditionally recently offered working capital, recently added invoice services.

To qualify for Kabbage's customized short-term loans, businesses must already use Kabbage's Funding and Payments services to power repayment. Since using the payments proceeds repayment method is a “pay as you go” model, it's potentially more popular than a traditional balloon payment at the end of the term.

“We’ve had a lot of feedback from our customers asking to gain access to short-term liquidity that is integrated with their Kabbage Funding loan product. It’s a lower cost loan than other competitive products in the marketplace,” said Kathryn Petralia, co-founder and president of Kabbage.

Kabbage customers can choose loan terms ranging between three and 45 days and either repay the loan upon maturity or choose to allocate up to 100% of Kabbage Payments revenue to be applied toward the loan balance. The custom loans have a one-time fee that starts as low as 0.10% with pricing being adjusted based on the term length of the loan and repayment method choosing between paid in full upon maturity or paid over the term of the loan through the proceeds of payments processed through the Kabbage Payments service.

The loan offers business owners the flexibility to choose the repayment method and term, which is something that they have been demanding, Petralia said. It is also possible for an owner to choose different repayment options and terms each time a new loan is requested.

Kabbage Funding goes up to a $250,000 maximum available credit. The short-term loans will be fixed to 10% of the overall line of credit so the maximum short-term cash flow loan that would be made is $25,000.

“We are essentially building a treasury management function for business owners. This ‘Cash flow-as-a-Service’ is one of the many tools that Kabbage will introduce this year to meet business owners’ needs for better cash flow management,” said Petralia.

Kabbage Payments was launched last October in a move to take on Square and PayPal at their own game by taking a reverse approach those companies took — offering payments first and then using that transaction history to make lending decisions — and signals a path for more competition to come to the B2B payments market.

The Kabbage Payments service allows businesses the ability to create, send and manage invoices through an online portal, see all payment activity through a single dashboard and access money earned within a 24-hour window (time and business day restrictions apply).

Business owners can use Kabbage's new custom payments link to create a unique URL for their business and send payment requests through texts, emails or the web to collect card payments securely and rapidly. The service was rolled out in October to its entire customer loan portfolio after completing a successful beta pilot.

In a bid to stir up interest in its payments service Kabbage is offering an introductory discount for its service to new customers. New Kabbage Payments customers will save with a competitively low fee of 2.25% per credit-card transaction until June 2020 (the standard Kabbage rate is 2.9% plus 25 cents per card transaction).

Businesses can send an unlimited number of invoices and estimates for free with no monthly fees. Cash and check payments received are always free.

According to Crunchbase, a website that tracks investments in private companies, Kabbage has raised over $2.5 billion in debt and equity financing over 16 funding rounds with investors including SoftBank, Credit Suisse, Santander Bank, Thomvest Ventures and ING Ventures.