Financial Lender Kabbage Moving Into the Channel with New Program

Global financial services provider Kabbage has launched an automated online lending solution for the channel that it says will help partners transition to a recurring revenue business model and help their end customers finance prohibitively expensive technology upgrades and services.

While the language around the program is tailored to master agents and their channel customers, a company spokesperson confirmed that the same level of service and benefits are available to value-added resellers (VARs), system integrators (Sis) and managed service providers (MSPs) and their clients.

Money is flowing into the channel in ways that are new to most small and midsize businesses (SMB), and to an extent, channel shops in the midmarket, as well. As outside interest in the channel continues to grow, we’re seeing more private equity pouring in and more partners shelling out big bucks to acquire other partners as a means of expansion. Likewise, the conversation around financing is growing louder as more partners are shifting to the recurring managed services model or trying to up-sell and cross-sell solutions that carry a hefty upfront price tag for their customers.

Kabbage says its new program is designed to help ease that pain and facilitate such conversations with clients. In particular, the lender emphasized the difficulty SMB and midmarket partners may have financing multi-product purchases through master agents or IT distributors. Procuring funds from traditional lending can take a long time, require short repayment lengths and add to the already overwhelming amount of paperwork partners have to handle on a day-to-day basis.

“Service providers are no longer required to cut their margins to fit a deal within a customer’s cash restraints or a manufacturer’s financing,” says Noel Hillman, Kabbage’s head of sales. “Kabbage provides agnostic financing to keep margins intact and provides the commission structure to enhance deal margins.” 

Noel Hillman

Still, financing solutions such as this are a relatively new play for MSPs and VARs, which typically either have the customer pay upfront or procure funding from vendors. Lenders such as Great America are increasingly making appearances at channel-focused conferences to explain how their services can help partners grow. However, there’s still a great deal of skepticism around financial institutions, which haven’t had a great track record of late. For newer entrants like Kabbage, that skepticism is higher. Nancy Sabino, co-founder and CEO of Katy, Texas-based SabinoCompTech, says her first reaction to the news was to ask, “What’s the catch?” Even so, Sabino admits the potential benefits are intriguing.

“I think this sounds like a good option for funding that hits several pain points that I’m sure a lot of people have with traditional lending,” says Sabino. “It’s a pain to go through, it takes a long time, paperwork is a headache making it almost not worth it, and so on.”

The lender’s own research team polled 800 small businesses, and it says the results show that nearly three in five (60 percent) of SMBs plan to invest in technologies that will remove manual processes, reduce paperwork and improve productivity, and nearly half plan to invest in cybersolutions to protect their business’ and customers’ data. These aren’t cheap investments, and someone has to bankroll them. Kabbage says its product structure allows agents to benefit from the health of their customers’ businesses and bulk up their recurring revenue streams outside of the boxes they move through pure-play resale.

“Small businesses have access to capital 24/7, there are no obligations to take funds, and they can take as much as they need when they need it,” says Hillman. “They never need to reapply for funding, ask for permission to use funds, pay annual fees or visit a bank. It’s online, convenient and available for small businesses to cover any business expense.”

There’s an added perk for master agents managing lending for their subagents or MSPs and VARs helping their customers grow. Kabbage gives each referring partner a spiff every time one of their customers withdraws funds, on top of a commission paid when their customers qualify.  Withdrawals don’t have to be for technology, either, but can instead be used to improve the overall health of the business.

“On average, Kabbage customers take 22 loans over a five-year period, and Kabbage lines of credit go as high as $250,000,” says Hillman. “If a reseller has about 600 customers, and 10 percent (60) of them qualify, a scenario could be they will receive recurring revenue from more than 1,300 withdrawals over a five-year period.”

We can expect more programs like this to emerge, especially as partners continue to move away from one-vendor offerings and spread their products and solutions across multiple OEMs. Over time, the “catches” that Sabino refers to will become common knowledge, and front-runners will emerge that become industry standards and help establish best practices around channel-specific financing. Until then, programs such as Kabbage’s and Great America’s will be the testing ground for those willing to be the guinea pigs.