American Express acquires Kabbage, a small business lender
Rob Frohwein, CEO of Kabbage
Adam Jeffery | CNBC
As small businesses continue to feel the pressure of restrictions related to Covid-19, American Express announced Monday that it has agreed to acquire small business lender Kabbage, ranked # 24 on this year CNBC Disruptor 50 listing.
Atlanta-headquartered Kabbage is a data and technology company providing small businesses with a suite of financial products, including Kabbage Payments, which helps small businesses get paid and access money faster than they win. Kabbage Funding provides access to flexible lines of credit in a few minutes. To date, Kabbage has provided more than 220,000 US small businesses with access to more than $ 9 billion in working capital.
“For several years, American Express has been expanding beyond its leading commercial card products to offer business customers a growing set of payment and working capital solutions,” said Anna Marrs, president of commercial services. worldwide at American Express, in a statement. . “This acquisition accelerates our plans to provide American small businesses with a simple and efficient way to manage their payments and cash flow digitally in one place, which is more critical than ever in today’s environment.”
Kabbage says a small business can apply for and be approved for a line of credit of up to $ 250,000 in three steps – and in less than 10 minutes – using his machine learning algorithms. Speed of access to capital has never been more critical for small businesses than during lockdowns caused by the coronavirus.
In April, the Treasury Department approved non-bank fintech companies like Kabbage to participate directly in the 349 billion dollars Paycheque Protection Program (PPP), which allowed companies to apply for 10 weeks of funding to pay their employees and mitigate the initial blow caused by the pandemic. Last week, the Small Business Administration opened the forgiveness portal for these PPP loans as congressional leaders continued to negotiate a new stimulus deal.
“This is a great deal, pairing one of the leading fintech entities, Kabbage, with a great player who has a long-standing commitment to helping small businesses raise capital,” Karen Mills, Senior Fellow at Harvard Business School and former administrator of the United States. Small Business Administration, told CNBC. “Kabbage will be able to access Amex customers and low cost funds while Amex will benefit from a tech-savvy team that knows how to provide a seamless experience for small businesses.”
Due to his involvement in the PPP program, Kabbage distributed much more money than in the past, although he did so in much smaller increments. When the program extension ended in early August, Kabbage became the second-largest PPP lender in the country with nearly 300,000 applications approved, which represents more than $ 7 billion in financing for small businesses, according to the company.
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, since they are backed by the government. Each brings with it a small remuneration paid to the lender.
“We are delighted with this result,” Kabbage CEO and co-founder Rob Frohwein told CNBC, adding that the deal is “ideal for investors and employees, but also amazing for the small businesses for which Kabbage and American Express share a passion and a goal. “
“Together, we will strive to revive a sector that is an integral part of our economy and its recovery,” Frohwein said.
The acquisition is expected to be finalized later this year, subject to customary closing conditions. Kabbage’s pre-existing loan portfolio is not included in the purchase contract.