March 10, 2011
eBay, Etsy and Amazon have been the catalysts for millions of successful online businesses. In 2009, online sales accounted for 6% of all retail sales, and Forrester projects this number to rise to $250 billion by 2014, representing 8% of all retail sales.
Yet these online sellers face a unique funding dilemma when they are ready to grow and expand.
Kabbage recognizes that online merchants have a more difficult time obtaining the funding they need to grow their businesses, and they have set up a venture that provides working capital to these online merchants.
Traditional underwriting and funding criteria do not account for an e-commerce business model, or the value of recently sold inventory. Credit cards do not provide enough cash to help online merchants fund their businesses. Also, credit cards are an inflexible form of credit and don’t enable many merchants to acquire inventory (Visa is not accepted for many inventory transactions), or hire employees. Home equity lines of credit are tied to one’s personal assets, and with home prices they way they are, there is little available credit anyway. Online merchants may think to look to a Merchant Case Advance provider like AdvanceMe, however, these types of providers do not currently underwrite online merchants.
Kabbage, based out of Atlanta, Georgia, formulated its business model in late 2008 and in April 2010 began making its first advances to marketplace sellers. The company was founded by Robert Frohwein, CEO, officer and/or founder of multiple technology and service-related businesses including LAVA Group, ZapMedia and Security First Network Bank; Marc Gorlin, Chairman, a successful entrepreneur with a proven track record launching, growing and exiting technology companies including VerticalOne, Pretty Good Privacy (PGP) and The Lanta Group; and Kathryn Petralia, the company’s COO, and executive with multiple financial services and technology companies including Revolution Money, CompuCredit, U.S. Web and WorthKnowing.
Through Kabbage’s online application, businesses know within minutes if they qualify. The system checks the seller’s transaction history to make sure it’s active, and after an immediate and automatic review, an offer will be made to those who qualify. If the seller agrees, they simply click “Accept” and the process is complete.
Kabbage is one of the featured startups at our SXSW Accelerator Kickoff on Sunday. If you’re looking for additional capital for your online business or just curious about the process, stop by!
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