The Softbank-backed online lender has cut off credit to small business owners as the economic meltdown, occasioned by the coronavirus pandemic, finally takes a toll on financial institutions. Kabbage is also making big reductions to other customer credit lines and temporarily dismissing staff as current repayments take a hit.
It leaves thousands of small business owners distraught, especially those who primarily depend on the credit lines to keep their businesses running.
According to a 2016 study by JPMorgan Chase & Co., even in normal times, most small businesses only have enough cash to get through one month. Considering that some businesses have now been closed for over two months, losing their lines of credit could be a death strike as it effectively leaves them with no fallback plan.
Rob Jacques, the co-founder of theCodery, a Petaluma, California-based software consulting company, for instance, says he doesn’t know where to begin.
“They’ve left me high and dry when I needed them the most,” he told a Washington Post reporter. Interestingly, up until he lost his credit line, Kabbage called him almost every day asking him to borrow money.
Another galled customer, Joydeep Paul, has called the action outright “unethical” after his line of credit was cut from $22,000 to $0.
“This is very bad business ethics,” an angry JoyDeep, who runs an emergency medical training company in Princeton New Jersey, said.” You don’t just turn it off without a word.”
Excuses or Valid Reasons?
According to Kathryn Petralia, Kabbage co-founder and President, the lender had no choice but to cut the credit lines. Otherwise, the company risked long-term consequences.
“We securitize our receivables and are on the hook for loan performance,” said Ms. Petralia. “Our loan performances are currently suffering because of delinquencies since customers have no revenue because businesses are closed.”
Ms. Petralia adds that the majority of Kabbage’s customers are businesses with less than 20 employees “and they’ve been hit the most.”
Kabbage’s spokesperson, Paul Bernardini, has echoed these sentiments, saying that Kabbage has had to adjust to the realities of the current financial environment.
“Yes, we’ve temporarily adjusted our lines of credit. We’re now focused on supporting the SBA Paycheck Protection Program,” Kabbage spokesperson, Mr. Bernardini, said in a statement recently. “Like many everyone else, we’re reallocating our resources to respond to the national emergency.”
Hopefully, Someone Will Step in to Help these SMBs
The worst part about Kabbage’s actions is that there were no warnings at all. Most of the business owners only learned that their credit lines had been cut upon logging into their accounts. Indeed, one Kabbage employee who asked for anonymity says that the lender’s customer agents had been instructed not to tell borrowers that Kabbage had suspended credit lines.
It’s the worst possible thing that could happen to any business owner at this time. Hopefully, someone will come to their rescue.
AUTHOR BIO: Michael Hollis is a Detroit native who now lives in Los Angeles. He is an account executive who has helped hundreds of business owners with their merchant loans solutions. He’s experimented with various occupations: computer programming, dog-training, scientificating… But his favorite job is the one he’s now doing full time — providing business funding for hard working business owners across the country.