- 1 Kabbage or Traditional Banks: Which Is Best for Your Small Business Loan?
- 2 Kabbage to Offer Online Loans With Dutch Bank
- 3 Kabbage vs. OnDeck: Review Financing Options for your Small Business
- 4 Best Small Business Loans Online: LendingTree vs Lending Club vs Kabbage vs OnDeck vs Funding Circle & More!
Kabbage or Traditional Banks: Which Is Best for Your Small Business Loan?
With the advent of online business lending services like Kabbage, it's easier for small businesses to get the funding they need to get off the ground. But is it always the best option to go with an online lender like Kabbage? Sure, it is easier to get qualified for Kabbage and it often has lower rates, but it can also have shortcomings when it comes to certain small business needs. Here's a good breakdown of when you should consider Kabbage for a loan and when you should stick with a traditional bank:
Kabbage: If you've been turned down for a loan at a traditional bank.
Traditional bank loans are more difficult to qualify for than Kabbage, so if you've been turned down by the bank, try to get approved by Kabbage. As opposed to a loan, Kabbage gives its users a line of credit that they can borrow against. If your financials aren't strong, they'll give you a lower line of credit, and as you borrow and pay back loans on time, your line of credit will increase. It works well for sites that don't need a huge loan upfront.
Banks: If you need more than $100,000 in loans.
Kabbage only loans up to $100,000 at a time, and it can take some time to actually get approved for that much credit with Kabbage. If you have a large amount of upfront costs and need more than $100,000 to get your business up and running, you will need to stick to the traditional bank route when searching for your loan.
Kabbage: If you just need short-term micro-loans.
Kabbage gives each user a line of credit from $500 to $100,000 based on their credit-worthiness. You can then use that to borrow any sum of money up to your line of credit, with the catch that you must pay it back within 6 months. So if you have a $5,000 line of credit, you can borrow up to $5,000 from Kabbage. If you only need $1,000 here and $6,000 there for expenses, it makes sense to use Kabbage.
Banks: If you need more than 6 months to pay off your loan.
However, if you want to take out larger sums and need more than 6 months to pay them back, it might be smarter to try for a traditional bank loan. Kabbage only allows you to loan money for up to 6 months, so if you borrow $50,000, you have to pay that entire sum back (plus interest) within the 6 month timeframe. This is why Kabbage works better for micro-loans.
Kabbage: If you want to pay less interest.
The good news is, since Kabbage loans have a shorter payback period, they generally don't charge as much interest as traditional banks. In fact, they only charge a varied 1-13.5 percent in the first two months, and then it is a flat 1 percent rate for the next 4 months, which is significantly lower interest than traditional banks charge. If you only need a small loan and can pay it back within the 6-month time period, you can save on interest by going with Kabbage.
Banks: If you want to work within your established bank.
If you already have a business account with a certain bank, there can be benefits to sticking with your bank, especially the ease of getting the loan money and paying it back. While Kabbage offers easy money transfer and payback, it is all done through PayPal, which can be a turnoff for many borrowers.
Kabbage: If you need to get approved fast.
Traditional bank loans can take a while to get approved, and the paperwork involved is usually extensive. With Kabbage, all you have to do is link any of your financial institutions to Kabbage (including eBay, PayPal, Etsy, Amazon or even your traditional bank), and you can be approved for a line of credit in seconds. Kabbage determines the amount of your line of credit based on your financial information, so the more financial sites you link, the better.
Want to know more about Kabbage? Here is a good breakdown of the service as well as a review of OnDeck, another great business loan service.
Kabbage to Offer Online Loans With Dutch Bank
Kabbage's venture with ING Groep in Spain aims to get capital to every small business "that needs it and can handle it.”
Online lending platform Kabbage is teaming up with Dutch bank ING Groep NV to offer automated loans to small businesses throughout Spain and possibly elsewhere in Europe.
ING is the first global bank to partner with Kabbage, which provides loans of as much as $150,000 to pay for inventory, hire staff or other day-to-day business needs. Starting in mid-to-late November, ING will originate the loans in Spain and Kabbage will help fund a portion of them.
“Kabbage’s automated loan application and approval process is both accelerated and incredibly simple for customers,” ING Chief Executive Officer Ralph Hamers said in a news release. “This initiative perfectly fits our strategic priority to increase the pace of innovation.”
According to the statement, the two companies plan to expand the program to other countries after launching in Spain.
The Wall Street Journal reported that Atlanta-based Kabbage is one of several startups “muscling into financial services and attracting attention from large banks.” Last week, it raised $135 million in equity from Reverence Capital Partners, ING and other investors.
“We’re enabling ING to reach a market that they may not have been reaching before,” Kabbage CEO Rob Frohwein told the WSJ. “The objective is to get capital into every small business’s hands that needs it and that can handle it.”
Kabbage uses a wide set of online data and algorithms as part of its underwriting process, with loan applications approved within minutes. Borrowers pay fees of as much as 12% for the first two months and 1% for each month thereafter.
Along with other financial tech startups like Kreditech, Lending Club, and Prosper, Kabbage has been “adept in leveraging advances in big data analytics, social media, and e-commerce to steal a march” on traditional banks, TechCrunch said.
Other overseas banks including Spain’s Santander and Canada’s Scotiabank have invested in Kabbage.
Kabbage vs. OnDeck: Review Financing Options for your Small Business
Let’s say you put your small business’s product on groupon, and you’re seeing a huge spike in sales. This is wonderful for your small business, but there’s one problem: you don’t have the capital necessary to cover the extra cost of increased sales.
You can’t go for an SBA loan to cover the cost because, as we discovered last week , SBA funding will take 1 – 4 months to appear in your bank account. You need something that can be turned around in 1 – 4 days to get these orders out.
Kabbage and OnDeck are two short term lenders with a fast turnaround time on loans. Their application process is a breeze, their loan requirements are much less stringent than a traditional bank loan, and you can get the funding as fast as the same day you apply.
But there is a catch: these short term loans can be more expensive when compared to traditional loans. Kabbage and OnDeck assume a higher risk by providing a wider variety of businesses the money they need faster, thus they charge higher interest rates and fees. Continue on to discover just how high those fees are, what you’ll have to go through to get a loan, and which lender is better for your business.
Kabbage’s loan application process is simple and transparent. They offer loans from $2,000 – $100,000 with 6 month repayment terms. Once you are qualified you can get your money almost instantly.
To qualify for a Kabbage loan, your company must be in business for at least 6 months. They will also take into account your revenue for the past year and your personal credit history.
The application process has 3 separate steps: input your business information, review your business, and add account information about your bank, how you accept payments, etc.
Kabbage has one working capital product for small business owners that is actually a line of credit. Kabbage has a page that allows you to instantly calculate the average cost of their credit lines.
Using their cost calculator, we can see that a 6 month, $10,000 working capital loan from Kabbage will cost on average $1,200. This means that you will be paying back $11,200. We used an APR calculator to find out that the APR of this line of credit is 41.38%.
Kabbage has an interesting fee structure, where the fee for the first 2 months is 4X the fee for the last 2 months. For our hypothetical $10,000 loan, the fee for the first 2 months would be $400 and $100 for the last 4 months.
OnDeck actually has two different financing products for business owners. They have a 24-month term loan and a 6-month line of credit. They offer their term loans from $5,000 – $250,000, and lines of credit up to $20,000. The application process takes about 10 minutes and you can get your money in one day.
To qualify for the 24-month term loan, your business must be at least 1 year in business, have $100,000+ in annual revenue, and you must have a personal credit score of 500+. Companies looking to qualify for the line of credit will need to be in business at least one year with $200,000+ in annual revenue, and at least one owner with a 600+ personal credit score.
To apply for an OnDeck loan, you’ll need to go through 5 steps: input the name of your business followed by more detailed business information, next is personal information about the owners, financial needs and bank statements.
OnDeck’s line of credit product is similar to Kabbage’s financing product. A $10,000 line of credit through OnDeck paid back over 6 months is charged a rate of 36% plus a $20 monthly maintenance fee. Thus, the total payback amount is $10,961.46 + 6x($20 maintenance fee) = $11,81.46. The total cost of the loan is is $1,181.46, just under Kabbage’s $1,200 for a similar product.
OnDeck’s term loan product offers larger loan amounts at lower interest rates. For example, OnDeck advertises here that a $25,000 loan with a 6 month term has an average interest rate of 17%. If you add the origination fee, the APR is 25.96%. The total financing cost will be $1,879.11.
To compare OnDeck’s $25,000 term loan to Kabbage’s working capital loan is hard because the products are so different — Kabbage advertises the same average APR for a $25,000 line repaid over a 6 month period as they do for their $10,000 line. The APR is 41.38% and the business owner will have to pay back $28,000, giving the loan a total cost of $3,000.
It can be difficult to try to decipher OnDeck’s loan products. Their product description pages pose confusing terms regarding the total cost of their loans. For example, on this page, they list an APR of 36% for all lines of credit, but they leave the $20 monthly maintenance fee separate from their APR, which would actually make the APR a few points higher. On this page, they list simple interest instead of APR, and note below the 2.5% origination fee which also brings the cost of their loans up significantly.
Best Small Business Loans Online: LendingTree vs Lending Club vs Kabbage vs OnDeck vs Funding Circle & More!
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Attention small business owners: Do you have an urgent need to fill your inventory? Purchase equipment? Pump up your marketing campaign? Hire another employee? You’re in funding luck these days, thanks to the many websites that cater to small business loans online. With the decline of smaller community banks, it’s harder than ever for you, as a business owner, to obtain the financing you need to keep your business up and running — and successful.
Online vs. Traditional Small Business Bank Loans
So, what are the benefits of getting a small business loan online versus going the traditional bank route?
- Your loan approval and getting cash-in-hand is a MUCH quicker process when you apply for loans online.
- If you can’t qualify for a traditional bank loan (i.e. your credit score isn’t up to par), you’re more likely to be approved by an online lender.
Of course, this raises the question — how can online lenders offer consumers financing that traditional lenders don’t offer? The short answer, unfortunately, is that your APR is normally much higher with online loans. BUT if you’re in dire straits and need money right away, your best bet is to secure one of the best small business loans online that we’ve reviewed here.
Ask yourself these few questions before searching for an online loan:
- How much cash do you need?
- How soon do you need it?
- What kind of financing can you afford?
- How long before you can pay it off?
- Are you willing to sign a personal guarantee? (Allows the lender to pursue your personal assets if you default.)
The major benefits of securing a small business loan online come down to saving you the time and hassle you’d likely face trying to get a traditional small business loan. If you need financing right away, your options are limited unless you consider an online loan source.
Best Small Business Loans Online
Read our reviews below to see what your options are. We’ve done the research to provide our small business lending recommendations along with some of the information you’ll need to get started.
OnDeck launched in 2007 to fill a much-needed financing gap for small businesses. They claim they’re committed to offering financing based on performance rather than just a credit score. However, their minimum credit score (yes, they do have one) is 500 for term loans — a minimum that’s lower than many other online lending sites. OnDeck offers two financing options: line of credit and term loans, which range from 6 to 24 months. Customers around the web rave about OnDeck’s seamless application and approval process and their exceptional customer support.