Kabbage Loan Is A Losing Proposition

4/30/2013

The following article is purely the opinion of the author and not intended to harm or cause damage in anyway to the business enterprise of Kabbage Inc. The intent of the article is to provide insight and information to help consumers decide whether a Kabbage loan is in their best interest.

I sell a great deal of vintage sports cards on eBay. To feed my eBay store, I purchase a tremendous amount of vintage sports cards on a regular basis. Sometimes I don't always have the funds when a good deal presents itself. I recently observed the advertisements for Kabbage on eBay and tried to research this "loan" system. I could not find a negative review of Kabbage on the internet. Though everything I read seemed to come straight from a Kabbage Inc. press release. These folks are smart and have enrolled an army of internet professionals to espouse the benefits of Kabbage.

I went to the Kabbage website and read the Kabbage "loan" contract. According to the contract, Kabbage is not a loan at all, rather, they claim to purchase your future sales. They call the "loan" an "advance." There is an incredible amount of legalese in the Kabbage contract. To say the contract is skewed in favor of Kabbage Inc. and limits your rights to almost nothing, is an understatement. One of my biggest concerns with the Kabbage contract is that since it is not a loan per se, Kabbage does not have to follow federal and state lending laws. Thus, when you contract with Kabbage, your rights are greatly limited, as opposed to a traditional bank loan where you have protection in the form of state and federal statutes.

Well, I wanted to make this purchase of a large group of cards, so against my better judgment, I took a Kabbage "loan." I knew right from the start that it was a losing proposition but I felt the only way to fully understand how Kabbage operates, because the contract makes no sense, was to take an "advance."

Here's what I learned: At a minimum, you are going to pay $300 to take a $1000 advance from Kabbage. The company's internet professionals espouse about a supposed 8 percent interest rate. This is complete nonsense, I ended up paying more like 40 percent interest because of all the fees. These folks are quick with the fees, so that $300 cost will go up quickly. First off, you only get six months to pay off your Kabbage debt. You give Kabbage full access to your PayPal account. Your first payment is due before you can purchase and receive product. With no time to sell the new product before payment is due, expect to receive a late fee. Then the friendly folks at Kabbage will raid your PayPal account until that first payment is paid in full. You can forget about purchasing eBay shipping. You will have no funds in your PayPal account to purchase eBay shipping and the free tracking because Kabbage will grab it as soon as a customer makes a payment. I ended up having to go to the post office to pay the higher USPS shipping cost and tracking. So I incurred a late fee from Kabbage and had to pay extra shipping fees because Kabbage wouldn't leave any money in my PayPal account to purchase eBay shipping.

I found it difficult to meet any of my Kabbage payment due dates. The due date is usually between the 5th and 7th day of the month. If you're like me and pay your eBay fees on the last day of the month, you have less than a week to sell enough product on eBay to cover your Kabbage payment -- nearly impossible. The result, another fee. Kabbage gives you just five days after your payment due date before a fee is incurred. The end result here is Kabbage is a bottomless pit of fees and aggravation. I will not take another Kabbage loan and I urge others to avoid this company at all costs. With all the fees in addition to the amount of money I spent purchasing product with my Kabbage "loan," I ended up losing money. My goal is to make money, not lose it. In my opinion, Kabbage is a borderline predatory entity. I think state and federal officials are going to have to refine consumer protection laws to make this Kabbage-type "loan" illegal.

The comments posted below are the independent opinions of the posters and not that of the author. I have disabled further comments. Seems like the majority of comments that come in are phony.

18 Comments

Hilda Miles - Advanc-ED PD

7/4/2013 02:36:04 am

Thanks for this info - when I got to the PayPal prompt & they wanted my password, I immediately took 3000 thot's backwards - NOT!! This was the top of the kabbage search!! Thanks for your honesty & candor! Continual successes~!~

Melanie Bixby

7/9/2013 03:28:05 am

Thanks for the heads up! I was trying to find out what they were about and you saved me lots of wasted time.

happyuser

8/15/2013 06:38:37 pm

there is a lot of your experience that has been just the opposite for me. kabbage has helped me out tremendously. the majority of the items i purchase for resale on ebay are returning 80-100%+ after fees, and having access to quick cash when the opportunities to acquire inventory present themselves is worth the 16% of the principle i pay over 6 months. and since the interest is spread out over 6 months, if you pay the balance sooner the total interest paid is less. don't use it if you're going to get in over your head and do silly things like not give yourself time to be prepared for your advance due date and end up having your paypal account pinged by kabbage every time you get money.

Tony

8/15/2013 11:20:28 pm

What's your eBay ID? I'd like to see your operation because I think it is nearly impossible to make your Kabbage payments because after you receive the Kabbage funds you have to (1) purchase product, (2) if you purchase your inventory online, you have to wait to receive your product, (3) then you have to scan/post your product on eBay, (4) if you're selling at auction, like I do, you have to wait another week for your auction to end, and (5) then you have to wait for the buyer to pay. All five of these steps need to occur and steps (4) and (5) need to occur quick enough so you can make your Kabbage payment. Frankly, I'm not buying your story.

Bill

11/18/2013 05:30:23 am

if you aren't a kabbage plant and your business is so profitable, a much better and cheaper solution is a traditional bank line of credit and the protections it affords. you get the money immediately because once you get the line of credit you can use it at will. if that's too hard for you to get and your that desperate for immediate money, then your business is not successful enough to warrant borrowing anything. you would have saved a ton of money in fees, been more profitable, and had the protections of a bank loan that fall under federal and state usury laws if a loan becomes necessary to purchase goods (and not pay off the last kabbage loan or credit card bills).

Jackson

8/21/2013 05:01:21 am

I agree with this article somewhat. I borrow money from Kabbage, because it is instant and just in time for a deal. I find that the interest rate is closer to 33.9% when you factor in all the fees charged. I do not know why they charge fees upfront and on each payment, that just pushes the interest paid much higher than a regular loan. I view their loan as a somewhat hybrid between a regular loan and an amortized loan (similar to a mortgage). I think the 6 months payback period is okay, though I would prefer the option of a longer period. I disagree with their start repaying within 30 days, because it does take about 45+ days to get the goods to market, so by then, you are behind, if you did not anticipate well ahead for the first payment.

DAN

10/28/2013 07:07:28 am

I've around 65,000 sports cards ranging from 1976-1994

Jack

11/11/2013 12:37:40 pm

Does it seem to people on here that the positive things you hear about kabbage are just "planted" by the company? Internet review trolls? I'm having a hard time forming my opinion. All I know is that it does seem to be an expensive and last resort option. Thx

Nicoll

11/14/2013 02:03:57 am

Thank you for clarifying the way they work. The ad popped up as I was looking at my eBay account, I thought it seemed odd they don't put a lot of info up about hos the loan works. Now I know why. Thank you very much for sharing your experience.

DISCOUNT60

11/17/2013 12:27:11 am

We applied for the paypal working capital which is a waste of time as everyone we spoke to was refused even if they received the invite letter. I see Kabbage is no better and has all sorts of hidden fees. Bank of america will continue to get our loan business.

Bill

11/18/2013 05:12:51 am

Awesome article and nice warnings, a level of truth you will not find at kabbage.com - these guys are exempt from usury laws which basically means they can charge whatever interest they want hiding behind the legal jargon in the contract to make the "easy money" seem like a good option. stay away from these people, trust me, it will not end well. and one of the other commenters is correct, you will see a ton of kabbage postings around the internet which are planted by kabbage employees (no pun intended lol). unfortunately fat daddy is one of the only places to see some honest information about these dishonest people at kabbage. hope you have a good lawyer because i can see these criminals coming after anyone who tells the truth about their business. research usury laws and these guys have found a gold mine by circumventing them. some judges are waking up to it though. merchant lenders like these are quick to point out that they are not loans but future receivables, and then head into court implying they are loans that have more strict rules on customers who default. hopefully you're the lucky person thinking about using kabbage that stumbled on fat daddy here. save yourself the trouble and the money. much better to manage your money better to keep the business afloat rather than borrow from these guys, because if you keep doing it and getting suckered into the next "loan" from them, you'll quickly find your business in default. the hidden fees will destroy you.

BIll

11/18/2013 05:20:22 am

...and be aware that these jokers make you sign a personal agreement which basically means that if you default, they're coming after YOU and your personal assets (house, car, anything, etc) even if you have the protections of a company. your only option will be personal bankruptcy as well as the added glory of a failed and bankrupt business.

Simple math:

11/20/2013 08:55:04 am

16% interest over six months = 32% APR!

Michelle Phoenix

12/17/2013 02:54:41 am

Thank you so very much for sharing your experience. Your candor is very much appreciated. I was finding it difficult to find an unbiased review of Kabbage on the internet. I am a new and very hopeful small business owner. I believe that you have saved me much trouble and heartache. Many happy returns to you!

Kustomer

2/3/2014 05:07:55 am

I used Kabbage a few times very successfully. i started with small amounts, paying them off each time before borrowing more. Then I borrowed almost 10,000 and had payments around $2k per month. It was scary, but I managed.

Next, I borrowed $2k, it was not enough, had to borrow a bit more like $200, then another $300, say - not realizing even though the total amount owed was not nearly $10k, my payments skyrocketed to almost $3k per month. Instead of going in and borrowing the total amount and repaying it all to them to lower my payments (my first and correct instinct), I listened to someone who said to contact them for help. DO NOT.

Contacting them for help resulted in them cutting off any funds whatsoever. The help they offered was 2 business days to assist in bank transfers. It was not enough help. I called them again after this to see if I could get my monthly payments lowered at all and they said someone would call me back - they never did.

So now I have to pay $3k per month on a $6k debt - while with the same company, I previously had $1800 payments on a $10k debt. I will pay this off as fast as I can and never use them again. I will NOT refer them (not even for $100) and caution anyone using them to never borrow while you still owe. There is no tracking of what payments are already being calculated (unless you have the presence of mind to make it yourself). The total balance owing has very little to do with the payment structure.

Now, they are drawing out every penny out of my PayPal account as soon as it comes in, night and day. It's depressing and difficult. Luckily, I put aside a bit of money in Stamps.com to continue shipping for a while, but I don't know how long that will last. My business was fairly thriving, now it's hemorrhaging money.

The ironic thing is that if I had borrowed more money at the onset, I would have been much better off overall and for the monthly payments. Never ever borrow more from them while you still owe them if you can avoid it.

What could they do to make it better?
1. Total up the payments as the person is looking at taking out money rather than only showing the current payment. Make this point more obvious, because it is not at all obvious.

2. Communicate and actually work with people when they come and ask for help. It will help their business, not just the borrowing business. If you are bleeding every cent from a small business, it cannot survive, so how can they repay? Instead, make a larger overall total and lower the monthly payments a bit or at least consolidate them.

I would say this is not a viable alternative. Amazon and PayPal are offering funding and the terms look a lot better. There will soon be other competitors for Kabbage. While I am very grateful they helped me, I wish they would make it easier to pay them back more quickly. I can't wait for them to be paid back~!

Thank you very much for posting this. I wish I had seen it before borrowing.

Ted

3/4/2014 01:26:33 am

Wow!! How I can agree to that!! Wish I would have seen your article sooner!! I am now in this boat you described and may lose my business of 26 years in the making, I also started as a Sports cards business........ Can you make arrangements with them if you are slipping on covering your Payments??

Tony

3/4/2014 01:31:41 am

I was able to make my payments but it was a real burden. If you can't make your payments, I suggest you contact Kabbage directly and hopefully you can work something out with them.

Kustomer

3/4/2014 02:16:41 am

No, contacting them did no good whatsoever. In fact it made things worse for me. The smart thing I could have done was re-borrow the entire amount and pay it off immediately, thereby consolidating the payments and getting a much lower rate. Instead, I contacted them and they froze my ability to borrow more money. I was locked in the high payments - still am, though it's almost paid off now due to the aggressive nature of the payment schedule. Pretend you owe money to a loan shark and don't miss a payment. They came into my bank account and I had to take money out of my 401k to keep the account from becoming overdrawn. Try first looking to see if your payments would be lower if you borrowed the entire balance all at once. They will block you from borrowing if they get any sense you are having trouble at all. Good luck and keep us posted.

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Kabbage Loan Is A Losing Proposition

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