Have you ever thought “if I only had more money for inventory, my business would really take off?”
A few months ago I heard about a company called Kabbage that provides money to online businesses like ours based on our sales history rather than a huge long application form and pledged collateral. I was intrigued and decided to try it out…but also wary. The business model sounds a bit like “I’ll gladly pay you Tuesday for a hamburger today” and I expected to read a bunch of fine print and find hidden fees and caveats galore.
I was quite pleased to be wrong. Kabbage is simple and straight-forward. They give you money, you pay it off over six months or sooner and they get a fee for this.
You can use the money however you like in your business – there are no stipulations – but the way I used it is to buy inventory.
Your Kabbage account is connected to your Amazon account so they can see your history. They also connect to eBay, Etsy, Yahoo! and Shopify if you also sell there. In addition, you can attach your PayPal, Authorize.net and Quickbooks accounts for a greater possible advance.
They extend funds based on your history, level of sales, and a patented algorithm of their own making. This means that people with good sales may qualify for some level of funds even if they have some dings on their credit. In fact, the founding inspiration behind Kabbage was that they knew online sellers often had money tied up in inventory and sometimes had cash flow issues.
I asked a company spokesperson about how much history they need to see to extend funds and he said a minimum of six months, so this is not a solution for start-up cash, but rather a way to speed up your growth once you are an established seller.
Unlike a bank line of credit or a credit card, Kabbage does not charge interest. Instead, they charge a fee based on the amount you borrow and how quickly you pay it back. It is set up so you fully repay the loan in six months, if not sooner. They take the money out of your bank account. If you pay it off sooner, you save money on fees which is really cool.
For my experiment, I advanced $500 to buy additional inventory for the Christmas rush. My fee was calculated to be $35 for the first month which means I now owed $535 to Kabbage. I turned that $500 into a $1,200+ profit so it was well worth the $35 fee minimum.
Here’s how they figured my payback:
Month 1 – $118.34 plus $35.00 fee.
Month 2 – $118.34 + $5 fee.
Month 3 – $88.34 + $5 fee.
Month 4 – $88.34 + $5 fee.
Month 5 – $43.32 + $5 fee.
Month 6 – $43.32 + $5 fee.
I’m paying it off this week so I won’t owe the fees for months 4-6. The minute I made my first payment, I had funds to spend again. I don’t have to wait until the whole thing is paid off to pull out more money. In addition, my good repayment history and level of sales qualifies me for more funds.
One of the things that impressed me about Kabbage was how easy it was to get started. They promise on their website seven minutes or less to sign up and they weren’t kidding. I had money allocated to me in about five minutes. The walk-thru screens and directions to attach my Amazon and bank accounts were easy.
I like the Kabbage approach, too, because they are not a credit card. In the past, I’ve been burned badly by the card guys who would hike up my interest rate because I was late on someone else’s bill and dirty tricks like that. Aside from my AMEX, I don’t have credit cards today and I don’t ever plan to again because I hate those guys. Living on a cash basis has other benefits, too, of course.
Anyway, a straight fee that I know about in advance is very appealing and business friendly.
Kabbage is currently available in the U.S. and the U.K. While Kabbage is not free money, it is cheap money and a great option for people who want to grow their sales. Having gone through it myself, I can recommend Kabbagewholeheartedly. Assuming you have a history of success in the business, there’s no reason not to take their money and grow faster. At the time of this writing, they are offering a $50 gift card to new sign-ups.
If you decide to give Kabbage a try and click on one of the links in this article, I will get a gift card from them. My decision to try out the program and write about my experience came long before I learned about their referral program, however. You can go to their website without my link here: www.Kabbage.com.