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Kabbage Gets $75 Million Debt Deal From Victory Park, Thomvest

Kabbage Inc., a startup that uses cash advances to help online merchants buy inventory, added $75 million in debt financing to expand its customer base.

The debt facility was led by Victory Park Capital, a Chicago firm whose other investments include the Giordano’s pizza chain and Fuller Brush Co., Kabbage said today in a statement. Existing equity investor Thomvest Ventures Inc. also participated.

Kabbage, named after a slang term for money, targets merchants using websites such as EBay Inc. (EBAY) and Amazon.com Inc. (AMZN) as well as other sellers that are rejected or overlooked by traditional lenders such as banks because of their lack of collateral or lower credit scores. The Atlanta-based company will use the debt financing to make more advances to new and existing customers, Marc Gorlin, chairman and co-founder of Kabbage, said in a phone interview.

Victory Park Principal Tom Affolter said his firm has followed Kabbage since its inception. “There is a clear void in the market as traditional financing sources remain reluctant to lend,” he said.

Kabbage previously raised $56 million in venture capital over three rounds from investors including TPG Capital’s David Bonderman, Stephens Inc.’s Warren Stephens, Mohr Davidow Ventures, BlueRun Ventures and United Parcel Service Inc. (UPS)

Kabbage uses buyer feedback ratings, selling history, turnover, accounting data, bank account information and other metrics to approve unsecured cash advances online in a few minutes.

Automatic Deductions

Once it approves a request, Kabbage puts money in an online merchant’s PayPal account, and repayments are automatically deducted monthly. Traditional lenders can’t approve loans as quickly and typically require collateral.

The average line outstanding is about $12,000, and Kabbage is testing advances of $100,000 or greater, Gorlin said. Customers come back to Kabbage an average of 10 times a year to take additional cash to boost inventories or cover expansion costs, he said.

Kabbage has more than 100,000 customers, and expects to be cash flow positive sometime in 2014, said Gorlin. He sold his previous company, VerticalOne, to S1 Corp., which is now part of ACI Worldwide Inc. (ACIW)

Although Kabbage’s advance isn’t secured by collateral, the company’s charge-off rate, which accounts for clients who don’t pay back the money on time, is “well below” the industry average of 8 percent, Gorlin said.

Kabbage has experimented with other non-traditional data such as a merchant’s Facebook Inc. (FB) and Twitter Inc. feeds, and it found that customers who link to their social media information are 20 percent less likely to be delinquent than those who don’t.

“They’re more engaged and on top of their business, and their accounting, ordering, shipping,” Gorlin said. “If they’re paying attention to that, odds are they’re paying attention to everything else too.”

-- Editors: Anita Sharpe, Tom Giles

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

To contact the editor responsible for this story: Anita Sharpe at asharpe6@bloomberg.net

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