Kabbage Review 2021: A Loan from This Line of Credit Can Calm Your Cash Flow Woes

As the poet Robert Burns once said, “The best laid budgets of mice and men go oft astray.”²

Okay, so he said schemes, not budgets, but the point remains.

Plan all you want, but when clients pay late or your furnace suddenly croaks, you could still find yourself with cash flow problems, trying to decide if you should pay the bills or pay your employees. That’s when Kabbage's line of credit could come in handy.

Kabbage offers small-business lines of credit with fast approval and fast funding—but does it offer an improvement on traditional lenders, or will it make you wish you’d stuck to a brick-and-mortar bank? Read our Kabbage review below to find out.

If you struggle with cash flow, you likely already know that a business line of credit (LOC) can help you. Unfortunately, you may also know that—like many of the best business loans—lines of credit often require high credit scores, high annual revenue, and several years in business, making them inaccessible to many borrowers.

Consider Kabbage instead. Kabbage has relatively low application requirements when compared to many lines of credit. Plus, its automated process lets you get approved and funded in a jiffy, so you can smooth over your cash flow—before it’s too late.

In order to qualify for Kabbage funding, you need to have been in business for at least one year. You’ll also have to have an annual revenue of at least $50,000, or you can show a monthly revenue of at least $4,200 for at least three months. You should also have a personal credit score of at least 540.

These relatively lax requirements come with one catch: Kabbage requires a personal guarantee for its line of credit. So if your small business defaults on its loan, you’ll be held personally responsible for the debt. This puts your personal assets in danger. But if you don’t default on your loan, it won’t be an issue.

So how do you get your hands on a Kabbage line of credit?

Kabbage offers a fast, automated application process. It’s not the only alternative lender to do this—Kabbage competitors like Fundbox use a similar method—but if you’ve only ever applied for startup loans by putting on a tweed blazer and going to talk to Joan down at your local credit union, we think you’ll be impressed.

Where some lenders make you spend hours filling out a lengthy application and trying to remember where you stashed your tax returns, Kabbage simply asks you to answer a few brief questions about your business. Next, you connect Kabbage with your bank account or accounting software.

Then Kabbage works some automated algorithmic magic and bam!—you get approved within 10 easy minutes via the magic of online lending.  That means you don’t have to sit around and worry about making ends meet as you wait to find out if you got approved for funding. You know right away.

Kabbage will perform a hard credit inquiry when you apply. Just know that this could affect your credit score.

Note also that Kabbage stays connected to your accounts after this process, and, in fact, must stay connected so long as you use it. Kabbage uses up-to-date security practices to keep your information safe, so it shouldn’t pose a problem; we just want to make sure you’re well-informed.

But enough about applications. Assume you get approved—what does that mean for your financing?

Kabbage offers just one product: a small-business line of credit.

A line of credit gives you a credit limit and allows you to draw against that limit. If you have a $50,000 limit, for example, you can draw $1,000 and then $5,000 and so on until you’ve withdrawn up to your limit of $50,000.

As you repay what you’ve borrowed, those funds become available again. Pay back $5,000, and you’ll have another $5,000 you can borrow. That’s why lines of credit are called “revolving” credit, and it means you’ll have working capital on hand when you need it.

With Kabbage, you can think of each withdrawal from your line of credit as a separate short-term loan, each with its own loan terms and accompanying fees. Kabbage will bundle your payments for each loan, so you’ll still make just one monthly payment, even if you have several short-term loans.

But how much can you borrow, anyway? Well, Kabbage offers credit limits of up to $250,000—higher than some other online lenders, but not as high as many traditional banks offer.

Keep in mind, you won’t get a $250,000 credit limit by meeting the minimum application requirements. If you apply with $50,000 in revenue and just one year in business, you can expect to get a limit closer to $2,000. For high limits, think three years in business and revenue of $100,000.

But your credit limit isn’t the only number you need to consider with Kabbage; you also need to know your fees.

First, let’s clarify something: we’re not talking about Kabbage interest rates here, but rather fees. Kabbage doesn’t charge interest on its line of credit. Instead, you pay pre-determined fees on each draw.

We should preface this section by telling you straight-up that Kabbage has a, well, unusual approach to fees and repayment. In fact, much customer criticism of Kabbage comes from people who didn’t understand their repayment schedules.

Let’s spare you that frustration by breaking this down.

As we previously said, Kabbage requires monthly payments, which it automatically withdraws from your account. If you have a six-month term, you make six payments; if you have a 12-month term, you make 12 payments. Those monthly payments include payments on the principal (your Kabbage business loan amount) as well as fee payments.

Your principal payments stay the same every month—just take the total loan amount and divide it by the months in your term, and you have your principal payment. So if you borrow $10,000 over six months, just divide $10,000 by six to get your monthly principal payment of $1,667.

Your fee payments, however, change over your term. Initially, you’ll pay a fee between 1.5% and 10.0% of the total loan amount. After a few months, those fee payments drop to 1.0% of your total loan. For six-month terms, these lower payments start in month three; for 12-month terms, they start in month seven.

Add your monthly principal payment to your monthly fee payment to get your total monthly payment. Again, this payment will decrease mid-way through your term.

For example, let’s say we withdraw $10,000, and we have a fee of 3.0%. Here’s how that fee schedule would look for a six-month term:

Notice the drop in fees and the total payment in month three. Just to be clear, initial fees range between 1.5% and 10% depending on your agreement with Kabbage, but later fees drop to 1.0% for everyone. Whether you start out with 1.5% or 10.0% fees, you’ll finish your term with 1.0% fees.

Here’s that same $10,000 and 3.0% fee in a 12-month term:

To help you better understand different loans, Kabbage does send a SMART Box with its line of credit offers. This document breaks down the cost of small-business loans in clear, readable terms so you’ll know exactly what you’re getting into.

Kabbage’s website points out that you can save money on fees by repaying early, as you only get charged fees for months when you have an outstanding balance. Technically, yes, you can save money this way—but do the math before you decide to repay early.

As we just showed you, your loan fees start out high and then drop. So yes, you can save money on fees by repaying your Kabbage loan in full ahead of time, but if your payments have already dropped to a 1.0% fee schedule, you won’t save as much as you might expect.

In other words, you’ll save some money, but since you pay most of the fees at the beginning of your term, you don’t have much incentive to make an early repayment.

Kabbage doesn’t charge origination fees, maintenance fees, annual fees, or prepayment fees.

Unsurprisingly, Kabbage will charge late fees if you make a late payment: a $10 fee for balances less than $100, a $35 fee on balances between $100 and $5,000, and a $100 fee for balances over $5,000.

So, uh, pay on time.

Kabbage lets you access your funds in three different ways: through your PayPal account, your business checking account, or a Kabbage card.

Note that each method gives you access to the same line of credit, and therefore the same rates, so you won’t really get a better deal by choosing one over the other.

Mostly, it just matters how fast you need your money and how you’re likely to use the money. Whatever method you choose, you’ll repay your line of credit through monthly automatic withdrawals.

If you need to cover bills that automatically get withdrawn from your bank account, for example, you may choose the business checking account option; if you need to pay for a service from a place that prefers credit card transactions, you might want the Kabbage card.

Both the PayPal account and checking account options give you the chance to review your line of credit terms and conditions before drawing funds, either online or with the Kabbage mobile app. The Kabbage card, however, works a little differently.

The Kabbage kard—excuse us, Kabbage card—works like a credit card, but it’s not a credit card.

That is, a Kabbage card is a physical Visa card that looks exactly like a credit card, and you can swipe it anywhere that accepts Visa. You can run it as either credit or debit.

Of course, a Kabbage card draws from your line of credit, meaning that each time you use it, you take out another short-term loan. Again, the Kabbage card gives you instant access to your funds—but that means you automatically accept a six-month loan from Kabbage without getting the chance to review it.

The Kabbage card offers great convenience, just like a credit card, but the instant swiping could make it easy to use it more than you should. Use it prudently.

Kabbage has an A+ rating with the Better Business Bureau and a 4.2 (out of 5) TrustScore on TrustPilot, meaning customers tend to like Kabbage. ^{4, 5}

Kabbage wants you to know that it is not technically a lender—it’s a tech company. When you get money through Kabbage, those funds actually come from its partner, Celtic Bank.

That being said, you apply through Kabbage, withdraw funds through Kabbage, and make payments through Kabbage, so the distinction appears negligible at best. If you call Kabbage an online lender, we won’t tell anyone.

Kabbage’s line of credit can give you access to the working capital you need to deal with cash flow interruptions. Thanks to its fast application and low requirements, Kabbage is accessible for more small to medium-sized businesses than many lenders.

However, Kabbage has high fees and a confusing payment schedule, which makes it a less-than-perfect offering. These fees don’t need to be a dealbreaker—just make sure you fully understand how Kabbage works before using it for your small-business lending needs.

Want to see some alternatives to Kabbage? Check out our rankings of the best small-business loans.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.