If you own a small business and are on the lookout for a loan, having a less than ideal personal credit score will often mean that lenders will shut you out right at the very beginning of the application process.
One lender in Kabbage however does not have a minimum credit score requirement when they review your loan application. Below, we will take a closer look at how you can possibly go about applying for a small business loan from Kabbage, despite your poor credit score.
Quickly dispensed loans
Kabbage is most popular for the speed with which they dispense their loans. Applicants, if approved, can potentially receive funds on the same day they apply for a loan! However, please note that not all applicants will be able to enjoy same day fund dispensing. In some cases, it can take up to a week before the application is approved and a loan is dispensed.
If not for credit score, how does Kabbage evaluate my application?
Kabbage stands out in the small business loan segment in this regard. Unlike most other lenders who will rely on credit score coupled with business revenue, cash flow and other such details, Kabbage will give you the opportunity to link an account into which you receive your usual customer payments. For example, if you use PayPal to receive funds from your customers, you can use your PayPal account’s history at Kabbage. Depending on the strength of your transaction history at PayPal, Kabbage will decide if you qualify for a loan in just a matter of minutes.
Kabbage also works with QuickBooks, Stripe, Amazon, eBay, Square or even your business checking account and several other established platforms. You have the option to link multiple accounts as well, if you receive money through more than one channel.
Besides the strength of the accounts that you use to invoice your customers, Kabbage will also take into consideration your business’s average monthly revenue, how long you have been in business and also see if you have a predictable sales or revenue pattern.
How much loan can I get?
Kabbage currently dispenses loans ranging anywhere between $2,000 and $100,000.
Will my credit score be checked at all?
While Kabbage does not weigh your personal credit score heavily, it will definitely look it up and consider it during the review process. However, unless your credit score is really disastrous (less than 500), it won’t be the primary reason why your loan application will be turned down.
How much APR will I have to pay?
Since Kabbage issues loans to business owners with not so great credit, their rates are not surprisingly on the higher side.
You can expect to pay an effective APR that can range anywhere between 32% to 108%. We say effective APR as they don’t really explicitly charge an APR to your loan. Instead, they charge a fee structure with which you have to derive an APR.
What is the repayment time that I get?
Unlike other lenders who give you 3 to even 5 years to pay back your business loan, Kabbage will require you to pay back your loan in 12 months or less. In some cases, it might require you to pay back your loan in just 6 months.
How is repayment structured?
Unlike other lenders who apply a straight APR on your Loan, Kabbage uses a slightly complicated “fee” structure to calculate your repayments. Their repayment schedule will require you to pay a “fee” that can range anywhere between 1.5% to 12% of your total loan, for the first two months. Then after, for the remainder of the loan term (4-10 months), you will have to pay another 1% of the loan principal as on going fees. Of course, besides these fees, you will also have to pay back the principal in equal installments as well.
If that sounded a bit confusing, let’s look at an example.
Example loan borrowed from Kabbage = $5,000
Kabbage sets your “fee” rate for the first two months at 8%
Your repayment tenure is 6 months
In the above example, your repayment will work out as follows.
1st month = Fee = $400 (8% x $5,000) + $833.33 ($5,000/6) = $1,233.33
2nd month = Fee = $400 (8% x $5,000) + $833.33 ($5,000/6) = $1,233.33
3rd month = Fee = $50 (1% x $5,00) + $833.33 ($5,000/6) = $883.33
4th month = Fee = $50 (1% x $5,00) + $833.33 ($5,000/6) = $883.33
5th month = Fee = $50 (1% x $5,00) + $833.33 ($5,000/6) = $883.33
6th month = Fee = $50 (1% x $5,00) +$833.33 ($5,000/6) = $883.33
Total payments made = $5,999.98
Because this is a 6 month loan, the effective APR will work out to (($599.98 – $5,000) / $5000) x 2 = 39.95%
Will Kabbage charge pre-payment penalties?
No, they don’t. But, since the collect most of their “fees” in the first two months, you will not save much in interest costs unless you paid back the loan before the end of the first month.
For example, using the same loan illustrated above, let’s say you pay off the loan in the third month. All you will save is the $100 x 3 = $300 in fees that you will pay on months 4, 5 and 6.
Since most business owners who need a loan will be unable to pay off a loan in its entirety in the first two months, you can’t really say that Kabbage doesn’t charge any prepayment penalties.
As you can see, Kabbage can be a great option when your not so ideal personal credit score won’t help you secure a loan anywhere else. But, it comes at a price. Also, if the repayment tenure is a bit too hectic for you, you can consider other types of fast emergency business loans, like from On Deck, which we have reviewed at Money Looms.