The influx of technology into the alternative lending industry has drastically changed the way small businesses access financing. As the co-founder of the online alternative lending platform Kabbage, Kathryn Petralia has been helping to lead this change.
Petralia and Rob Frohwein launched Kabbage in 2008 in an effort to speed up the lengthy lending process. Where the undertaking used to take days or weeks to complete, technology is allowing Kabbage borrowers to be approved for loans in a matter of minutes.
Prior to launching Kabbage, Petralia spent close to 15 years working in the credit, payments and e-commerce industries. She served as vice president of strategy for the internet-based credit startup Revolution Money and director of corporate development with CompuCredit Corporation, now known as Atlanticus. She was also co-founder and vice president of strategy for WorthKnowing.com and director of strategy for Visionary Systems.
We recently had the chance to ask Petralia a number of questions on small business lending and how technology has changed the process.
Q: What drew you to the alternative lending space? Why did you think the market would support a lender like Kabbage?
A: I've been in alternative lending since the late '90s. It's a very interesting area of financial services because it involves unique and interesting data combined with the potential for a great user experience.
With over 20 years working with large and small companies focused on credit, payments and commerce, I immediately saw the value in using technology to re-examine lending when co-founder Rob Frohwein shared his idea that resulted in the creation of Kabbage.
At the time, I could see that the lengthy, manual process that was used for funding decisions could be automated based on access to real-time data generated by numerous business operations.
Q: When a space is so crowded, like yours, what can you do to differentiate yourself?
A: Kabbage's connectivity with our customer base is unmatched in our industry. Across our 115,000+ customers, we have more than 1.5 million live data connections that allows us to re-underwrite customers every night, resulting in a continuous, real-time line of credit that accurately reflects the state of our customer's business every day.
Additionally, we are the only lender to offer SMBs the option to apply, qualify and draw funds entirely through a mobile app. Our Kabbage card allows qualified customers to draw from their line of credit at checkout or any point of sale (POS).
Kabbage is also unique as we license our technology to global banks, providing them more reach and a better user experience to serve their small business customers in a meaningful, cost-effective way. We have bank partnerships with Santander, Scotiabank and ING.
Q: What makes alternative lending an attractive option for small businesses?
A: It's much faster and easier than traditional processes, and the anonymity of an online application process takes some of the stress out of what is traditionally a very anxiety-ridden experience.
With Kabbage, in fewer than 10 minutes, small businesses can have access to an ongoing line of credit up to $150,000. Customers can borrow what they need when they need it and never pay for funds they don't borrow. There are no extra fees, and we have a prepayment benefit when customers pay back loans early.
The persistent access we have to our customers' data enables us to provide a unique product – a line of credit that is flexible to meet the needs of growing businesses. We can quickly assess business performance and revenue, allowing them to access the funds whenever they need them, saving them time so they can remain focused on their business. That means no more extra trips to the bank or going through another application process when they need more funds.
Q: How should small businesses be comparing and contrasting the different lenders when looking for the best loan?
A: In listening to our customers' feedback, it's become clear that it is critically important for a business owner to understand the total cost of borrowing.
With so many products on the market today for small business lending, Kabbage collaborates with a group of other lenders to ensure pricing transparency with our customers. The result is the SMART Box initiative (Straightforward Metrics Around Rate and Total cost), which includes clear and consistent pricing metrics, metric calculations, and metric explanations to help small businesses understand and assess the costs of funds.
We encourage small businesses to be sure they are 100 percent comfortable and clearly understand on all costs and fees in taking a loan. Educating yourself is a wise approach so you know you're selecting the best option for you and your business.