Rob Frohwein, CEO of Kabbage
Adam Jeffery | CNBC
In late March, with the coronavirus pandemic forcing mom-and-pop stores across the country to shut down indefinitely, small business lender Kabbage put on leave a “significant number” of employees and suspended its credit operation, anticipating the contraction of its clientele.
But CEO Rob Frohwein, who co-founded the Atlanta-based company during the previous financial crisis in 2009, had no plans to sit idly by and wait for shelter-in-place orders to expire. Rather, he saw an opening for Kabbage to put his technology, more than a decade in the works, to use on a much bigger stage.
Frohwein knew that a large number of restaurants, boutique hotels, retailers and barbershops would immediately need government checks to avoid having to close their doors for good. So the CEO and his team, all working from home primarily in the Atlanta area, quickly partnered with smaller banks that would need the help of automation to quickly process stimulus requests for a business. so many of their customers.
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Kabbage was not designed with a public health crisis in mind, but the combination of its algorithmic underwriting and easy-to-use interfaces is exactly what was needed to make loans at the scale now required.
In April, the Treasury Department non-bank fintech approved companies like Kabbage to participate directly in the $ 349 billion Paycheck Protection Program (PPP), which allowed companies to apply for 10-week funding to pay their employees and mitigate the blow caused by the pandemic.
Cabbage now has provided PPP funding to over 130,000 businesses, with an average loan of about $ 29,000, compared to a total average of $ 113,000 for the SBA. Over 80% of beneficiaries have five or fewer employees, and many are so small that they have no established relationships with banks.
Kabbage claims that over 90% of the requests they processed for independent businesses were automated, meaning the borrower didn’t have to communicate with anyone on Frohwein’s team, and many applicants receive the same day SBA approval.
On Tuesday, Kabbage launched a streamlined PPP app for Uber drivers and delivery people using Uber to make it easier for them to apply for federal aid funding.
“The brilliant moment of FinTech”
“This was the shining moment for fintech,” Frohwein said. “Ten years ago, there was no way most of the businesses we serve would have secured funding. Banks would only have worked with much larger small businesses.”
Cabbage landed on 24th place on CNBC’s 2020 Disruptor 50 list, revealed Tuesday. Due to its involvement in the PPP program, Kabbage is distributing much more money than in the past and often in much smaller installments.
Frohwein said the company previously forecasted $ 3.6 billion in fixtures this year, but has already exceeded that amount, albeit with a very different type of loan. In more normal times, Kabbage would take out a loan, charging a rate that takes into account the risk associated with a particular small business and its industry. PPP loans, on the other hand, are virtually risk-free for Kabbage, as they are backed by the government. Each brings with it a small fee paid to the lender.
A look to the future
Frohwein is struggling to look far into the future at this point because the economy is in such a vulnerable state. The company entered the crisis well capitalized and with a relatively diverse revenue base, having expanded into payment processing and licensing its technology to large banks, which are using the platform to reach a wider range of clients. Frohwein said he had rehired about a third of the employees who were laid off or laid off in March.
Yet the financial impact of Covid-19 has a disproportionate impact on small businesses, Kabbage’s sweet spot. With infection rates still on the rise in many states and no cure or vaccine on the immediate horizon, its clientele is even more painful.
“I don’t think PPP is a panacea for this crisis,” he said. “There is going to be more stimulus behind this or unfortunately we are going to see a lot of small businesses not being able to stay in business.”
Frohwein said Kabbage is doing what he can to help keep existing customers afloat through deferrals and skipped loan payments. Knowing that some of them have already left or will eventually disappear, he hopes that the new relationships that Kabbage has established in recent months through PPP will bear fruit.
“The gratitude we have received from the clients we have helped is quite impressive,” Frohwein said. “We believe many will work with us in the future.”
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