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Kabbage: Line-of-credit product can boost channel margins

Kabbage financing is now available as a product that channel partners can offer their small-business customers, which can use the Kabbage line of credit for any product or service.

Kabbage Inc., a fintech company based in Atlanta, is bringing its style of digital disruption to the IT channel.

The company's newly launched channel venture lets partners offer their small-business customers a Kabbage line of credit. The company said its financing product, which provides small businesses with lines of credit up to $250,000, boosts partner margins and provides a recurring revenue stream. Fintechs such as Kabbage are challenging traditional financial services firms.

Kabbage provides upfront commissions to partners that include the offering as part of a customer sale. The line of credit may be used to finance any product or service the channel partner provides. Beyond the initial transaction, however, the small business may continue to use Kabbage financing for any business need.

Partners receive recurring revenue based on a customer's continuing use of the line of credit. Kabbage pays partners every time a customer uses the line of credit for the lifetime of the customer.

Noel Hillman, head of sales at KabbageNoel Hillman

Initially, Kabbage has primarily targeted telecommunications and unified communications agents and master agents with the financing product. Noel Hillman, head of sales at Kabbage, said the telecom orientation stems from his experience as a channel executive with a collaboration vendor. But he noted the Kabbage approach to small-business financing can also work with other types of resellers and managed services providers.

"What every company is really looking for is a new distribution channel," Hillman said. "The IT channel was a good fit for Kabbage."

Kabbage line of credit: Business, channel benefits

Hillman said the financing product helps channel-partner customers, noting that every small business "faces working capital issues day in and day out." For partners, Kabbage's commission structure provides incentives to offer Kabbage financing as part of their regular sales cycle.

The commissions add margin to a deal, and the potential for additional margin stems from the customer's ability to purchase products and services through the Kabbage line of credit that they would not have otherwise.

The IT channel was a good fit for Kabbage.
Noel Hillmanhead of sales at Kabbage

The financing can help partners improve services margins, in particular. Hillman said small businesses' typical financing options usually don't cover services and apply only to certain products. This situation compels the channel partner to compromise on services in order to make the deal. But the ability to apply the Kabbage line of credit to services, as well as products, keeps margins intact.

"We can allow that agent to keep the margin and offer more services to the end customers," Hillman said.

In the IT channel, distributors have traditionally played a financing role. Hillman said Kabbage can provide an alternative to distributor financing, but can also supplement what distributors offer.

"We can enhance that financing ... if [agents] want to offer more services," he said.

In addition to small-business customers, channel partners can also obtain a Kabbage line of credit. Partners may need funds to support a business model transition or a new line of business.

Qualifying for credit

Small-business customers can qualify for Kabbage financing in about seven minutes, according to Hillman. The company uses integrations with Intuit's QuickBooks accounting software and other financial applications to obtain a small business's revenue and transaction data. The data is then loaded in Kabbage's underwriting algorithm to determine the amount of credit for which the small business qualifies.

Kabbage has provided access to more than $5 billion in financing to small businesses, according to the company.

"Our qualification process is extremely data-driven versus the old-school banking method," Hillman said.

However, the finer points of financing arrangements will be left to Kabbage and not the channel partner.

"The way we set it up, we are handling the more difficult financial conversations that go along with the product," Hillman explained, noting that agents can focus on the other products and services they offer customers.

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