It’s the first of the month. You’re reviewing your financial forecast reports, monthly expenses, and cash flow for the quarter…
Oh, the joys of running your own small business. Steady income, benefits, short workdays that allow you much-needed time to lounge by your inflatable pool and brainstorm alternatives to dairy.
*record scratch* Aaand no.
Cash Flow Is A Knife
If you’ve been running your own business for a while, you know all about compounding stresses. You know about the peaks and valleys of workflow, and the revenue inconsistencies that can go along with it. And, if you’re anything like me, there are some stresses that feel manageable, and some that feel like a knife between the ribs. Cash flow is a knife.
When I started my business, I knew there would be an ebb and flow of work coming in – especially in the early stages. But I learned quickly that knowing and experiencing can be entirely different things. Those lean months – usually in the summer – were especially brutal. The lack of cash flow was crippling on two fronts. It was difficult to make ends meet and cover the necessities of life, and it was also near impossible to expand and improve my business. I needed revenue to do both and when this ground to a halt, it left me feeling panicked and ineffective.
Thankfully, it also prompted me to become proactive. I decided I needed to procure funding as a safety net but from where?
The Search For Salvation
I started doing research.
I was wary to work directly with big banks due to their fees, and I was nervous about my own credit score being affected, which left me with limited options. I wanted to find something that allowed me to make monthly payments, and had clear, intuitive support for any questions I might have. I looked at PayPal’s Business Loan Program – which seemed very good – and several others. What I landed on – and what turned out to be an excellent fit for me – was Kabbage.
Kabbage’s business lending is based on algorithms from previous sales and generated revenue. It uses these numbers to predict future revenue and from there, customizes a credit offer to suit. I found this a bit comforting – as opposed to having my credit score dragged out in front of me and placed next to my then low bank accounts and debt load. It can be painful being a business owner sometimes. Kabbage’s process was less of a shaming procedure.
The Kabbage Lowdown
Kabbage offers flexible credit lines that can be used to cover all business expenses. They max out at $250,000, and have commission rates ranging from 1.5% to 10%, depending on how your business is performing. With each request you make with Kabbage, you have the option of 3, 6, or 12-month payback terms.
There are some parameters. You need to stay in business for at least one year, with a minimum annual income of $50k. If this isn’t possible, you must show you’ve earned at least $4200 a month for the past three months.
Kabbage offers flexible funds, transparent conditions, and a very simple process for application. You can actually connect your business information directly to them online, which allows them to make an immediate evaluation. They have a mobile app, and a Kabbage Card that allows you access whenever you need it.
Taking the Kabbage Bite
After learning all this, I decided to test the waters (insert boiled Kabbage joke here) and here’s how it went:
- I borrowed $500 on my first loan – a small amount just to see what it was like to go through the process of paying it back.
- The fee for this loan was a low $25.
- The next time around I borrowed $3500, and the fee was $300.
I know $300 sounds considerable, but to be honest, when I need cash, I’m willing to pay extra for it – which I did over six months. If you pay the fee upfront, then you simply have the cash in hand at your disposal.
It seemed to be working well for me, and I repeated my borrowing several times over the course of two years, and I continue to do so today.
However, I did make some mistakes, and you’ll want to make note of this to save yourself some money.
Loan Lessons Learned
At the start I was approved for $13,000 – but I just took out small amounts here and there as needed.
What I didn’t realize was that each small amount I took from the approved total was a separate loan in and of itself. So, I wound up with several small, individual fees based on each loan. These added up quickly.
Thankfully, one of Kabbage’s advisors noticed this and reached out. He kindly informed me that it was better to take the entire amount upfront, with payments over the course of 12 months. This would allow me access to the amount as needed – and if not needed, the funds could be used to make the monthly payments. BUT more than anything, I would only have the one-time fee. I was relieved to learn this – so beware.
Here’s the thing – Kabbage worked out great for me, but it doesn’t mean it’s the perfect fit for you.
You must be aware of your own habits, your own financial situation and risk tolerance, and of course your goals.
For me, there are 3-4 months a year when client work slows down, and these are great opportunities for me to work on my business and make it better through research and collaboration and refining my skills. But I can’t be effective if I’m stressed.
Kabbage’s credit loans minimized that stress. I knew if I needed the funding it was available, and if I didn’t, no problem. I wasn’t stressing about paying the bills nor feeling crippled at not being able to move in any direction. That’s a big deal in terms of creativity and workflow.
So, consider where you are in your business, and make sure you have clear goals and a game plan.
If cash flow during low months is something you need to factor in, then Kabbage may be the right answer for you.