Kabbage is an alternative business lender catering to small businesses with somewhat weaker credit profiles that seek short-term lines of credit. Kabbage initiated operations in May 2011 and has now extended over $6.5 billion in credit lines to over 170,000 small business customers.
The company is not overly reliant upon FICO credit scores when making its underwriting decisions, and instead makes lending decisions based on factors such as transaction volume, social media activity and length of time in business. So, given this non-traditional approach – does Kabbage do a hard credit check? Read on to understand the Kabbage loan process, the impact on your credit score, and whether or not they report to credit bureaus.
Does Kabbage Report to Credit Bureaus?
Kabbage does not report repayment behavior to business credit bureaus or personal credit bureaus. This can be a double-edged sword. On the one hand, if a small business owner runs into difficulty in making timely repayments, the three major credit bureaus (Experian, Equifax and TransUnion) will not be notified, and there will be no detrimental entries made onto the business’ or business owner’s credit reports.
However, it would be irresponsible to view this reality as a “benefit,” since the objective when borrowing should always be to put funds to good use and to then make timely repayments. When it comes to Kabbage small business loans, when the small business owner does the right thing and makes consistent, timely repayments, it unfortunately will not aid in building the business’ or business owner’s credit score and profile. The Kabbage website does offer general guidance for business owners that seek to enhance their business credit profiles, but constructive Kabbage loan repayment behavior does not play a role.
Does Kabbage Do a Hard Credit Check?
While Kabbage is not particularly credit-score sensitive, it does require that the small business owner possess a minimum FICO score of 560 (a typical client checks in at 640 or higher), as the company will utilize credit scores to determine rates and terms. Other minimum requirements include having been in business for a minimum of twelve months, annual revenue of at least $50,000, and a business checking account or online payment service account with Paypal or Quickbooks. Meantime, Kabbage does not require a personal guarantee, implying that personal assets are not at risk in the event of default.
So, the question is, does Kabbage run your credit? Does Kabbage do a hard credit check? The answer, during the application process, is a resounding no. However, there is a catch. Kabbage will perform a hard credit check (through Experian) with the borrower’s consent, once a loan offer has been extended and accepted.
Therefore, it is safe to assume that when a business owner applies for a Kabbage small business loan, there will be no hard pull. However, once a loan is accepted and before such funds are disbursed, Kabbage will perform a hard credit check. Furthermore, Kabbage also files a UCC lien against a small business that has been awarded a credit line, implying that the small business and its underlying assets serve as a form of collateral against the loan.
The Kabbage Loan Process
Kabbage offers lines of credit that range up toward $250,000 for six or twelve month durations and at annual percentage rates that range from 24% to 99%, with an average APR of 42%. Repayment is done automatically each month, with each draw taken against a line of credit considered a separate loan of either six or twelve month duration.
Kabbage charges monthly fees of 1% to 10% of the balance, and these fees are front-end loaded. For example, for loans with a six month term, fees are assessed at between 1.5% and 10% for the first two months, and 1% thereafter. For twelve month loans, fees are assessed at 1.5% to 10% for as many as six months, and 1% thereafter.
Given the nature of these front-end loaded fees, and even in the absence of a prepayment penalty (Kabbage has none), any financial benefit that would ordinarily accrue to the borrower in the event of loan pre-payment becomes substantially reduced. Nonetheless, and despite their very high APRs, Kabbage lines of credit can makes sense for small businesses with weaker credit profiles that are in need of a quick short-term working capital infusion. Many successful applicants are funded within 24 hours of submitting the quick online application, adding to the convenience and appeal of the Kabbage lending platform.
About the Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.