Running an Amazon business requires capital. Sellers need money to start and then they have to decide if they’ll try to bootstrap growth or go get a loan. In this episode, we’re talking about Kabbage, a company that’s changing how small businesses get access to money.
Populuxe has been selling toys online since 1998. Their business now is mainly based on Amazon and right now is their busiest buying season.
“I just got off the phone with one of my manufacturers for $15,000 in Star Wars toys,” says Populuxe owner, Brian Cain, “We’re buying like crazy right now.”
Three years ago, in 2014, Populuxe was running out of money leading into Christmas and it was a major problem. Brian knew they could sell any inventory they bought for the holiday shopping season, but he didn’t have capital to buy any.
“We got to the point where we ran out of money. There were sales we were losing,” Brian says.
Brian was faced with a couple decisions. He could either do nothing and the business wouldn’t grow or he could get a loan. Brian wanted to keep growing and compete in the holiday shopping season, so he went to his bank.
“We tried my major bank where we had an account with for 20 years and they were very nice and very polite and they said no,” Brian says.
Most banks aren’t very familiar with the Amazon and e-commerce space, so they don’t give out loans or lines of credit. This was Brian’s problem. That’s when Brian started looking around and discovered Kabbage.
“They’ve been awesome, I think we got approved in ten minutes or less,” Brian says.
Kabbage is going to be the focus of this episode. They are changing the way small businesses, like Amazon businesses, get access to money. They want the process to be easier and faster.
“First of all, the fact that you can do the entire thing on a mobile device is unique to Kabbage, nobody else has that,” says Victoria Treyger, Head of Marketing and Sales at Kabbage.
Victoria also used to work at Amazon and she is our Amazon Insider for this episode. Victoria started working at Amazon when it was still mainly selling books.
“I really loved my time there,” says Victoria, “It was during the time that Amazon was expanding from books to other product categories and I was very fortunate to be part of the team that evaluated other product categories to expand into beyond books.”
Victoria’s job was to look at categories like software, music, and video. Her team would build businesses cases and plans for those categories. Then they would launch all those categories.
“It was awesome. I am a huge Amazon fan and it was a lot of fun,” says Victoria, “Incredibly smart people and what I loved about the company is thinking big.”
Later Victoria worked to help build the Amazon Marketplace, moving from books to other categories and then recruiting sellers to sell on Amazon.
“I’m proud of getting to work on the team that started the foundation of the Marketplace business that became so important to the future of Amazon,” Victoria says.
Now whether you’re just starting your Amazon business or you’ve been selling for a while, you’ve probably run into the same problem as Brian and his company, Populuxe: you need money to fuel your growth.
If you’ve been in business for less than a year, then Kabbage is not for you. Kabbage also requires businesses have revenue of more than $50,000 a year. If you meet those basic qualifications, then this episode will give you a lot of information about Kabbage and give you a good idea of whether or not it will work for your business.
Victoria has been at Kabbage for five and half years and just like Amazon has disrupted and changed online retail, Kabbage is doing the same for small business lending.
Here’s how the application for Kabbage works. First off, Victoria promises (and Brian backs this up) the application is less than 10 minutes and it can be done on a computer or phone.
The application has three major sections. In section two it asks for all kinds of business information. This is one of the things that really sets Kabbage apart. They use a massive amount of data that they tap into to get information on a business. They can use information from your Seller Central account to get you qualified for money.
“It was not just empowering small businesses but giving them the ability to leverage the data for driving the ongoing health of their business,” Victoria says.
You can also link to an eBay account, Etsy account, accounting data, bank information. There’s dozens of different types of information that you can connect to the Kabbage platform.
“Since we see what’s happening to your business and we have over a million data points, live data connections on over 100,000 small businesses, those credit lines continue to adjust over time to what your business needs,” Victoria says.
For example, right now, sellers are busy getting ready for the holidays. In September and October, Kabbage lines of credit automatically adjust to help sellers have the money they need to buy holiday inventory. Also, since the Kabbage platform is connected to 1.5 million different data sources, it automatically adjusts to other customer needs too.
“So if we see that business is growing rapidly the platform will automatically adjust the credit limit upward,” Victoria says.
Now once you’re approved, the money is yours to use, but you don’t pay interest. Instead, you pay a percentage fee for any month that you have an outstanding balance. The fees vary and are based on business performance factors.
So you can apply and if you qualify for a Kabbage line, you can let it just sit there until you need it. But how do you know if your business needs it? Maybe you feel like you’re doing great by just bootstrapping your growth. Brian says using a Kabbage line has allowed him to grow his own company faster.
“I think we’re up 35% from this time last year and we’re still going,” says Brian, “Without that we’d still be stuck at a lower level because we run out of money. It’s not that we can’t sell the stuff, but we can sell more stuff if we have the funds to buy the product.”
You can also do some math to determine if it’s the right move for your business. Look at the increase of revenue that you can drive minus your expenses, including shipping expenses and the Kabbage line. Then look at what is your net profit versus the cost of the funding.
“That’s how we always advise customers to think about the numbers and look both at the time horizon and the net growth,” says Victoria, “How much are you growing and are you able to do it faster.”
One of most obvious things Kabbage is used for is to purchase inventory – but there’s no requirements on what it can and can’t be spent on. Kabbage has also recently released a Kabbage card that links to your account.
Right now the lines are available for 6 months and 12 months, but there are longer term limits coming soon. Kabbage is only available in the United States but there are some banks in Europe, ING and Scotiabank, who are leveraging the Kabbage platform to get money for sellers.
Kabbage’s whole goal is to change how small businesses get capital to grow their business. Another example of how is the ability to get money when you need it. Maybe you need funds on a Sunday or any day when it’s not banker’s hours. Kabbage makes that possible.
“The power of being able to use and access funds at any point either from your mobile device or from the card are really really powerful in terms of the flexibility of how money should work in today’s world,” says Victoria.
Now there are other ways for sellers to get money. One way is through Amazon using Amazon Lending. Like Kabbage, Amazon also keeps track of your business performance and they will offer one-time loans to help your business grow.
“Amazon lending is a good idea on principal on some levels but it’s very difficult for me to see how an Amazon seller with long term intentions is gonna use Amazon Lending to continue to grow and do it within aspects it can control,” says former Amazonian James Thomson.
James now runs the PROSPER Show. Recently, we talked with him about Amazon Lending –
This is why he says he’s not the biggest fan.
“[Amazon Lending is] saying you seem to be good at buying the right kind of inventory to make Prime Eligible, go buy more of it,” says James, “What happens when I spend that $100,000 loan and I’m paying it back. ‘I need some more money because I’m still good a month later. I still have the same good eye to do that. Can I please have some more money?’ I can’t request Amazon lend more money. I just have to sit here and wait and hopefully I get it when it makes sense or when I need to ramp up inventory for Q4.”
When you are given money that you have to spend right away, you also may not make the best buying decisions to drive growth.
Then, there’s this nightmare scenario: If your Amazon account is ever suspended, Amazon Lending calls the loan once an account has been suspended ten days. That means they take money from your Amazon disbursements and then you can’t pay other bills you owe. James has seen that happen.
So before you get any sort of funding.ask yourself two questions. Ask yourself, what am I going to use the money for and what’s my ability to pay it back. Those questions and your answers will help you decide if you need funds and how best to use them to drive growth.