Kabbage diverts all resources to becoming a conduit for the SBA’s PPP program.

Some small business customers of Kabbage received an unpleasant surprise this past week. They found their credit line had been abruptly cut to zero. “This is very bad business ethics,” complained one distraught customer to Bloomberg. “You just turn it off without saying a word — not an email, not a phone call, nothing.” (BANKINGDIVE)

Kabbage explains

Apparently, Kabbage is eyeing a potentially lucrative, alternative business. It wants to route loans to small businesses under the SBA’s Paycheck Protection Program. The SBA will offer $350 billion in loans to struggling small businesses that have less than 500 employees.

Banks and other middlemen could make billions in processing fees from these loans.

But the real reason is Kabbage wants to protect itself from bad loans following the unprecedented business shutdowns amidst the coronavirus pandemic.

Speaking to FT, Kathryn Petralia, Kabbage’s co-founder and president, said it was the “government’s turn” to support small businesses through the calamity.

“We securitize our receivables and we are on the hook for loan performance, which is suffering because of delinquencies, because our customers have no revenue because they are closed,” she added.

Fairweather friend? It appears so. Rob Jacques, a co-founder of theCodery, a software consulting company in Petaluma, California, had his credit cut off without notice too by Kabbage. He told Bloomberg that the company had, until recently, called every day requesting that he borrow more money.

Funding update from Kabbage

On April 2, the fintech tried to put a different spin on its move to curtail lending. In a statement, Rob Frohwein, CEO Kabbage, said:

“We officially paused Kabbage lending on Sunday, March 29 as we needed time to restructure our systems and teams to prepare to deliver billions of dollars of aid through the Paycheck Protection Program.”

Clearly, the fintech is making the pivot from risky lending in times of economic duress to adding a safe, commission-based income stream from processing SBA loans.

But surely, it could have been handled better. Can you suddenly freeze an agreed line of credit to a customer without notice?

SoftBank is an investor in Kabbage

Kabbage raised $250 million from SoftBank Group in 2017. SoftBank this week backed out of a $3 billion tender offer for WeWork shares. It did so on the ground that the company did not meet certain conditions.

According to the WSJ, SoftBank was using regulatory investigations as a means to wiggle out of its commitment to buy the shares.

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