
SoftBank-Backed Lender Kabbage Cuts Off Businesses as Cash Needs Mount - CPLX
https://www.washingtonpost.com/business/on-small-business/softbank-backed-lender-kabbage-cuts-off-businesses-as-cash-needs-mount/2020/04/01/902f6694-7453-11ea-ad9b-254ec99993bc_story.html
======
CPLX
Kabbage Inc., an online lender backed by SoftBank Group Corp., cut off credit
to its small-business clients in the past week, more than a dozen customers
and an employee said in interviews.

The borrowers, who range from software consultants to heavy-equipment
contractors, said Kabbage didn’t give them any notice, and that they learned
their credit lines had been suspended only upon logging into their accounts.
Some said they were counting on the money to get through the tough times
ahead.

“This is very bad business ethics,” said Joydeep Paul, who runs Medserv
Healthcare Solutions LLC, an emergency-medical training company in Princeton,
New Jersey. He says his line of credit was cut from $22,000 to $0. “You just
turn it off without saying a word -- not an email, not a phone call, nothing.”

Online lenders have spent years touting themselves as the opposite of banks.
But as the coronavirus pandemic ravages cities across the U.S., they’ve turned
to a playbook that banks used during the last financial crisis more than a
decade ago: reducing access to credit when the economy is contracting. Other
lenders, including On Deck Capital Inc. and Fundbox Inc., have also tightened
their underwriting standards or limited lines of credit.

“They’ve left me high and dry when I needed them the most,” said Rob Jacques,
co-founder of theCodery, a software consulting company in Petaluma,
California. He said he was particularly galled to be cut off without notice
because until recently Kabbage called him every day asking him to borrow more
money.

Furloughed Workers

Kabbage, based in Atlanta, says it has loaned more than $9 billion to
thousands of small businesses since it was founded in 2009. The company
furloughed hundreds of its workers this week as it contends with a slowdown in
spending at small businesses, which have suffered as consumers nationwide have
been ordered to stay inside to slow the spread of the deadly coronavirus
pandemic.

Kabbage is now trying to position itself as a middleman that will connect
people with loans from the Small Business Administration. It has also started
a website to help small businesses sell gift certificates to consumers.

“Like many other fintechs, we have temporarily adjusted our lines of credit
and are focused on supporting the SBA’s Paycheck Protection Program,” Paul
Bernardini, a spokesman for Kabbage, said in a statement. “Just as
manufacturers have retooled their processes to build ventilators and masks,
we’re doing the same to reallocate our resources to respond to the national
emergency and provide financial products that small businesses need most.”

Rob Frohwein, Kabbage’s chief executive officer, put it differently in an
email to employees on Friday, when he said the company would temporarily stop
making loans.

“As of last night, all lending has been turned off,” Frohwein wrote.

Kabbage in 2017 raised $250 million from SoftBank. Other SoftBank Vision Fund
portfolio companies -- including Indian startup Oyo Hotel, co-working giant
WeWork and real estate brokerage Compass -- have axed staff in recent weeks.

Credit Reductions

The credit reductions come at a dire time for restaurants and shops across the
country. In normal times, small businesses have about a month of cash on hand,
according to a 2016 study by JPMorgan Chase & Co. That means they’re
particularly vulnerable as major cities across the country continue to expand
shelter-in-place orders.

On Deck began putting holds on customers’ ability to draw on their lines of
credit if they hadn’t done so in the last 30 days. Customers affected by the
holds have been asked to send the company recent bank statements to have the
holds lifted. Jim Larkin, a spokesman for On Deck, said the firm will
“continue to serve and support our existing customers and are selectively
lending to new customers.”

Fundbox, a venture-capital backed small-business lender based in San
Francisco, has also limited some customers’ ability to draw on their credit
lines.

“Like many companies that serve small businesses, we’ve had to make changes
that have affected some of our customers,” Tim Donovan, a spokesman for
Fundbox, said in emailed statement. “While these decisions have not been easy,
it will allow us to continue to serve the majority of our small-business
customers now and in the future.”

Kabbage customers who called to ask what happened were told that their
accounts were under review. An employee at Kabbage, who asked for anonymity to
protect their job, said that customer-service agents were instructed not to
tell borrowers that the company had suspended credit lines across the board.

Michael Figueroa, a security contractor in Fort Lauderdale, Florida, said the
representative he talked with was apologetic. “Hey, I don’t even know if I’m
going to be working here tomorrow,” he recalled the agent saying.

