A handful of startups are taking on traditional banking structures, and providing working capital to small businesses and individuals in need.

LendUp, Lenddo and others provide small-dollars loans to individuals that are traditionally denied by Main Street’s banks. Meanwhile, Kabbage, On Deck Capital and others are focussed on small businesses — they provide capital to online retailers so they won’t need to put personal assets on the line, like a house or car.

What these startups have in common is that they use publicly available data sources — social media data, sales and credit histories, demographic information and so on — to get a better picture of the borrower.

Kabbage monitors how merchants are interacting with their customers on Facebook, selling on UPS, or managing their finances in Quickbooks (Intuit’s accounting software for SMBs), as well as their transaction data from sites like eBay, Amazon and Etsy, to determine whether to give out a loan.

CEO Rob Frohwein explained in an interview that the engineering team is analyzing all the data to make “educated guesses” about a loan applicant’s future growth. Ideally, they are looking to fund merchants who are making about $1000 a month through their online store.

“When we tap into the data, we can see how you [an online merchant] were doing six months ago and project how you might fare a year from now,” he said by phone. Kabbage provides funding to about 80 percent of the small businesses that approach them — the big question, Frohwein admits, is how large the loan should be.

Due to its data-driven approach, the Atlanta-based company beat out hundreds of applicants to be named the winner of VentureBeat’s CloudBeat Innovation Showdown competition in late Nov.

on Soberg, a financial technology-focused investor at Blumberg Capital has been keeping a close eye on the company since it launched in 2009. Kabbage is providing “a really valuable service, and the market is underserved,” he explained. In my opinion, this is one of the iconic financial technology startup companies.”

Kabbage has continued to grow — and this week, announced an expansion to the UK, its first market outside of the United States.

Marc Gorlin, chairman and cofounder, said banks are “just as challenged” at providing cash to small businesses in the UK, “as they are here.” He added, “It doesn’t hurt that it’s also the biggest e-commerce market in Europe [and] is also Ebay’s fastest growing marketplace.”

Kabbage charges an interest rate of between 2 percent and 18 percent, depending on how long the advance is unsatisfied.  Merchants can use the working capital for as short as one month to six months. Kabbage lent about $7 million to small businesses in 2011, and “about ten times that” in 2012, according to Frohwein.

The company is pulling in north of $10 million in revenues on an annualized basis.

Just like any startup, Kabbage’s executive team need to fundraise to ensure they have a pool of money to lend. They have succeeded in raising about $60 million in equity and $15 million in debt to date, and expect to close another round in the coming months.

“We are still a small business feeling the pain of needing capital to grow,” Frohwein admits. “But we’re seeing a huge growth ramp,” he said.

Kabbage has received venture capital backing from Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund, and SV Angel, among others.

Small business loan image via mangostock // Shutterstock 

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Think $30 million is a lot to pay for produce? Not when it gives money back. Kabbage, which gives loans to online sellers, got $30 million in funding today, led by Thomvest Ventures.

Kabbage will give cash advances to small online merchants that need extra capital to pay employees, product products, get office space, and the myriad of other things businesses do to get bigger. In order to get an advance from Kabbage, you must be selling products via eBay, Amazon, Yahoo Stores, Etsy, Shopify, Magento, or using PayPal to process payments. When you apply for an account, the company’s technology will look at your seller history and determine whether you are approved for the capital and how much.

From there, Kabbage will put your cash advance directly into your business’ PayPal account. Seller pay Kabbage back over six months. Each month Kabbage takes a sixth of loan amount adds on an extra fee, which is to be paid by the seller. This fee can range between two and seven percent of the over advance. After the first two months, the fee goes down to a set one percent.

Kabbage received its first round of funding in August 2011, totaling at $17 million. The round was led by Mohr Davidow Ventures. This round was led by Thomvest Ventures with participation from existing investors Mohr Davidow Ventures, BlueRun Ventures, UPS Strategic Enterprise Fund, and individuals Warren Stephens, and David Bonderman.

Thus far the Atlanta company has taken on a total of $56 million in funding.