UPS Partners with e-Commerce Lender Kabbage

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United Parcel Service (NYSE:UPS) has teamed up with lending startup Kabbage to help nontraditional small-business owners acquire financial assistance for expansion. The program applies to established business owners with a track record of successful sales through Ebay, Etsy, and other online marketplaces. UPS, which can track shipping information in great detail, will play the role of data provider in the partnership.

Kabbage was founded in 2008 as a lending alternative for businesses that would face difficulty acquiring a bank loan because their credit scores are too low. Money that Kabbage allocates to clients is called a “merchant advance” because it’s not a loan in the legal sense of the word. The merchant advances carry no interest and there aren’t any penalties for early repayment.

A Kabbage client’s borrowing potential is determined by evaluating a combination of e-commerce factors, such as social media presence, and traditional metrics such as sales and credit score. The yearlong agreement with UPS will give Kabbage, based in Atlanta, a chance to analyze a prospective borrower’s shipping data before making a decision. UPS stressed that it will provide the data only with a customer’s permission.

Kabbage loans tend to be rather small—about $2,000 on average—but can in rare cases reach five figures. The company earns its capital from fees attached to the accounts, with 15,000 accounts reported at this time. A six-month repayment plan could start with fees of 3% for the first two months before dropping down to 1% for the remainder of the term. Kabbage is hoping to eventually partner with banks to provide larger loans, but in the meantime the backing of UPS is expected to help grow brand recognition and revenue potential.

This isn’t the first time UPS showed faith in Kabbage. Early last year, Kabbage earned $6.65 million in funding from investors that included UPS Strategic Fund, the corporation’s private investment arm. UPS Strategic Fund then participated in the next round of funding, announced late last summer, that provided $17 million for Kabbage.

UPS will be providing a credit facility for Kabbage to use, and it’s likely that the two companies will work closely to develop a data strategy. Kabbage is experimenting with what data should be used and how it should be applied, since striking the right balance will improve lending decisions. Further data expansions could appear in the future, potentially with other big-name companies that could provide relevant information.

With the company coming off a strong year in 2011, this is a terrific time for UPS to expand its brand. Earnings per share were up 25%, to $4.35, and revenue rose 6%, to $14.2 billion. Profits were $2 billion, a 17% increase over 2010, and free cash flow equaled $5 billion. The level of financial commitment UPS made to Kabbage hasn’t been revealed, but the latter company’s small size and solid startup revenue make it a fairly safe bet for the shipping giant.


Article printed from InvestorPlace Media, https://investorplace.com/2012/02/ups-partners-with-e-commerce-lender-kabbage/.

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