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SBIC loans can be an attractive alternative to venture capital for startups

New occupations have flourished on the web; among them, merchants on online marketplaces like Amazon and eBay.

But these new occupations are not supported by Main Street’s banks, and sellers are often deemed too risky for a loan.

To meet the demand, organizations like Atlanta, Georgia-based Kabbage are providing working capital to small-business owners so they won’t need to put personal assets on the line, like a house or car.

And Kabbage just announced it has closed a credit facility of $75 million, its largest to date. After just two years of operations, Kabbage claims to deliver more advances than any other provider in the industry. For this reason, Kabbage was named the winner at VentureBeat’s recent Innovation Showdown at our CloudBeat conference.

The company says it has extended more than 60,000 advances and expects to provide more than 100,000 by the end of the year.

CEO Rob Frohwein explained in a recent interview that the engineering team is analyzing all the data it can gather to make “educated guesses” about a loan applicant’s future growth. Ideally, it is looking to fund merchants who are making about $1,000 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 explained. Kabbage provides funding to about 80 percent of the small businesses that apply — the big question, Frohwein admits, is how large the loan should be.

Kabbage monitors how merchants are interacting with their customers on social media sites, 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.

“There is a clear void in the market as traditional financing sources remain reluctant to lend,” said Victory Park Capital’s Tom Affolter.

Victory Park Capital led the funding round, and equity investor Thomvest Ventures also contributed.

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