Sramana: What is the formula for calculating how much money people can get against their recievables?
Marc Gorlin: That is part of our secret sauce. However, it takes into account various data sources and different sources have different values. Nobody, unlike any other financial institution, gets turned down solely based on their credit score. We believe that business performance is more important to powering small businesses than their credit scores.
We look at their sales history, their payment history, and how well they have gotten paid by their customers. We have something called social binding to see how engaged they are with their customers on Facebook and Twitter. We can see if they are actively taking care of customer complaints on those channels and if they use those channels to push out sales and promotions. We think engaged businesses are more on top of their business in general.
We have a partnership with UPS where, for the first time in 120 years, they have allowed their customers to share their data with third parties for something other than package tracking. They are doing this so that we can look at that data and we give our customers more cash for sharing that data. We allow our customers to append their QuickBook statements to their Kabbage account. Over time, you will see us leaning on these data sources to extend credit to offline and online businesses. Our goal is to extend cash to any business.
Sramana: Let’s simplify this a bit. Let’s say a company is doing $20,000 a month. What kind of deal can they get from you?
Marc Gorlin: We extend money anywhere from $500 to $50,000. We can take care of business that are small as well as businesses that are quite a bit larger. We are also testing some lines in the range of $100,000 with some customers. When we first started we were between $2,000 and $12,000. We have since moved down to $500 and up to $50,000. As far as quoting a scenario like the one you provided, and assuming that a high credit score is available with multiple sales channels, I would expect to see anywhere from $20,000 to $40,000.
Sramana: What is the structure of the deal?
Marc Gorlin: Let’s assume someone took out $10,000 to keep the math easy. The advance charges are going to be 2% to 7% for month one, 2% to 7% for month two, and 1% for months three through six. We offer a six-month product. They can pre-pay at any time, and there are no pre-payment penalties.
Sramana: You are essentially talking about a $10,000 working capital extension that gives them some flexibility with their inventory, right?
Marc Gorlin: Absolutely. They can pull down a little of it or all of it. If they only need it for 30 days and they fall in the advance charge of 3%, then they will pay only $300 for using that $10,000 that month.