After picking up $250 million in equity funding from Softbank earlier this year, the small business loans and finance company Kabbage — which uses only algorithms and machine learning (no humans) to determine an applicant’s eligibility — is announcing another big infusion of money. The company is picking up $200 million from Credit Suisse in a revolving credit facility that it will use for loans.
Specifically, Kathryn Petralia, who is the COO and co-founded the company with Rob Frohwein, said the funding will help the company increase the number of loans it can make to larger companies in the US. The average size of those loans will grow to “north of $200,000,” she said.
The money getting announced today brings the total debt funding for Kabbage up to $750 million (with previous tranches coming from the likes of Guggenheim Securities), and it is notable for a couple of reasons.
As Petralia describes it, it’s the largest-ever credit facility provided by Credit Suisseto a loans platform that makes all of its lending decisions based around algorithms and machine learning. To date, the company has served 125,000 customers and made over $3.5 billion in loans by evaluating a myriad of data points related to the company, from accounting details to more lateral information related to its social media profile, location, and line of business. With some 1.5 million data points in all being crunched as part of its decision-making, the claim is that Kabbage’s algorithms are more accurate at finding loan-worthy candidates and avoiding defaults. S
Secondly, this is the first credit-facility transaction for Kabbage rated by rating agency DBRS, Kabbage said, notable again for the fact that the underwriting (evaluation) is done through its automated algorithms. “The ratings from DBRS demonstrates recognition of Kabbage’s ability to predictably and responsibly recognize, qualify, and manage risk,” the company notes.
This will come as welcome news to others in the world of fintech that are looking to disrupt the traditional bank-based loaning market with technology. Others using big data to evaluate and underwrite loans include Kreditech (which focuses on helping to create credit scores for people who are “unbanked” and is backed by Peter Thiel and Naspers), Fundbox (also with a long list of interesting investors including Jeff Bezos) and BlueVine (backed by Citi Group, among others).
Kabbage is currently profitable in its loans business but still operating at a loss in its platform operation, a newer business launched in 2015 that powers other lending businesses alongside Kabbage’s own retail operation. (Customers include Kabbage itself, which has a Karrot consumer loans business; as well as major banks like ING, Santander and Scotiabank.)