If you’re a small business owner looking for alternative ways to gain access to capital, you’ve probably heard of Kabbage, one of the leading online providers of working capital for small businesses. This month, Kabbage has raised $50 million in addition to securing a $270 million credit facility from Guggenheim Securities.
Why Online Alternative Lending Can Work for Small Businesses
Non-SBA lenders like Dealstruck*, MultiFunding, and SnapCap meet the demand of small business owners who have had their loan applications rejected due to either the transaction size being unprofitable for traditional banks, or because they do not qualify for traditional bank loans or credit lines. Whether it’s a unique small business structure, lack of collateral, or poor business credit; the underserved market of growing small businesses is being served by these lenders working to create a quick and simple process to access the capital. Small business owners can use the funding for buying power and to grow their businesses.
The online feature of these alternative lenders benefits small businesses that primarily conduct sales online. Because Kabbage accesses a loan applicant’s sales data on Etsy, Square, eBay, along with information about their social media accounts and followers, they are able to form a holistic picture of the business, its revenue flow, and potential for growth, allowing them to approve loans that traditional lenders would not.
Advantages of This Type of Alternative Lending
Kabbage prides itself on its seven minute application process and instantaneous decision on the amount it will lend and the term of the loan, which will never exceed six months. These lenders focus on simplifying access to capital because unlike traditional banks, they tend to specifically serve small business owners whose limited time is usually spent developing products and a customer base, and not dwelling on financials. Kabbage users can use a mobile app to draw against their line of credit once a day and there is a clear cut, once a month pay back plan provided to each user.
The immediate online features and easy to use interface allow small business owners access to the capital to buy bigger lots of inventory, fill bigger orders, and access new markets. Additionally, as more and more online alternative lenders emerge and competition increases, borrowers should end up paying lower rates for these loans. Ultimately, there are many viable options for small business owners to fund their growth, but it’s important that the small business owner to investigate and find the right fit for their company.
*Dealstruck will be attending our San Diego Access to Capital event on June 5th.
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Photo Cred: Jo Zimny, Flickr