Businesses need capital to grow, but obtaining it may be easier said than done.
As many companies know all too well, bank lending to small businesses has declined significantly since 2007 and has not recovered from the recession at the same rate as the rest of the economy. The demand, however, is still there. That’s where companies like Kabbage, which recently opened a Bay Area office, help to fill the gap.
Capital is king
“Providing capital to a smaller business is like watering a plant,” says Victoria Treyger, Kabbage spokesperson. “It enables the business to grow and in turn contributes growth to the rest of our economy.”
But it’s not as easy as walking in the door and out with a check. Businesses need to adhere to best practices and avoid certain pitfalls to take advantage of any kind of funding.
“Smaller businesses are the backbone of our economy and contribute 50 percent of our jobs, so providing them capital to hire employees and grow their business is important as the U.S. economy recovers,” says Rob Frohwein, CEO of Kabbage.
“However, getting that funding today from traditional financial providers is difficult for smaller business owners. Banks have been increasingly unwilling to lend to small businesses since the 2008 downturn and, even when they do, the process takes weeks to months. Consequently, so many business owners are turning to alternative funding providers like Kabbage who can get them capital to grow,” he says.
Keys to obtain funding
To get that capital, there are certain best practices like a good credit rating that are timeless, and others that have become important with the rise of digital media, Treyger says.
“In running a strong small business, there are the basics of keeping your accounting software and your books on track, and paying all your vendors on a regular basis is really important,” she says.
Kabbage also will look at how a company interacts with customers.
“So having a strong social media presence where you are responsive to your customers, and you have strong customer sentiment is also very important,” she says.
“We have found that small businesses use social media as a customer relationship management tool,” Treyger says. “We want to fund businesses that are responsive to their customers because that is a sign of a healthy business that is going to be growing over time.”
Small companies also need to be aware of the pitfalls they may encounter when borrowing, she says. For instance, watch out for hidden fees.
“There are the basic fees that all lenders charge, but some have extra fees that a smaller business may not notice, such as an origination fee, or no benefit for prepayment. So always look at and understand the entire fee structure.”
Borrowers should also look for superior customer service from lenders.
“It’s very important to be able to talk to experienced representatives who can guide the small businesses on how to manage and grow,” Treyger says.
How to reach: Kabbage, (866) 986-8263 or www.kabbage.com