Kathryn Petralia, co-founder and head of operations of Kabbage, knows a thing or two when it comes to small business financing. Kabbage has quickly grown into an Atlanta unicorn with its small business loan platform lending over 2 billion dollars throughout the United States. The fintech shark shares what it is like to run a skyrocketing startup, how they help small businesses and license their technology, and what it is like to be a female tech leader.
Why did you decide to start Kabbage?
It was actually based on an idea that my co-founder had. He was working with eBay data from a recently launched API and realized there may be a way to automate small business loans based on the rich data available from eBay, which was seller level, transaction level data. He called me up and said, ‘Hey, what do you think about the idea of using this data stream to make automated underwriting decisions?” Because my background was in consumer lending space, which had been automated since the 90s, I thought, yeah, absolutely, that sounds interesting.
At the time, we had no idea that most small business loans were manually underwritten, and that even the new entrants in the space were very people intensive. So, I think the fact that we didn’t come from that industry allowed us to look at it differently, and we probably approached it in a way we might not have if we had been in small business lending previously.
Even our ‘founder’ story is different; it’s not like we were trying to start a business and couldn’t get a loan, spawning the idea. It was more an opportunity to use really interesting, rich data and technology to automate a process and create a really great user experience for a business borrower.
How has Kabbage helped small businesses?
People ask me often what the biggest surprise is that I have in this business and I think for me it’s the enthusiasm and gratitude that our customers have for the product that we are delivering to them. Most of our customers are using the funds for growth capital, so they are investing in marketing and inventory and technology and equipment and things they can use to generate additional revenue. They are often able to take advantage of opportunities they wouldn’t have otherwise had to grow their business. Some businesses are also able to use it to smooth out uneven cash flow, and in some cases we have even helped them stay in business during a lean time.
They are also happy for the capital because it’s so hard for a small business seeking less than $250,000 to get a loan from a bank. It’s such a labor-intensive process that it’s not cost effective for them to provide small loans. While $250,000 doesn’t sound small to us, it’s certainly a lot of money, for a bank that’s small considering that most of their business loans are millions of dollars and they have to invest the same amount of effort in each one.
What I’m most excited about is how excited our customers are to have access to something capital that has never before been available to them. Small businesses represent 50% of our GDP and 2/3 of all new jobs that are created in the US. So it’s a really important part of our economic ecosystem and we are excited to be part of that.
What’s in store for Kabbage in the future?
We operate two distinct businesses. We offer direct loans to small businesses in the US and we also license our technology to financial institutions globally. We’ve made about 2 billion dollars in loans to businesses in the US and now we have launched in Spain with ING. If you are a small business in Spain and you log into your online banking account at ING and apply for a loan, Kabbage’s technology drives that process. So we are providing the technology that gives their customers the same experience our customers have in the US. Our customers get through the entire application and funding process in about 7 minutes on average so it’s really fast.
People often say, “Hey, your customers must be really desperate for cash if they need to get it in 7 minutes.” Our response is that they are really desperate for time. So we are doing all the work for them. There are a lot of lenders that claim a business can get a loan the next day or within the next 24 hours, but they aren’t calculating the amount of time the business owner has to invest in the application process, which can be very lengthy. In our case, we are able to take that user experience to banks and they are able to give that great experience to their customers.
We are also launching in the UK with Santander and launching in Mexico with Scotia Bank, so we are very excited about the ability to launch with these really huge banks around the world. If you asked us two years ago if we could deliver on this kind of an opportunity I would have told you, “No, There’s no way!” But it’s been really exciting to continue to meet the challenges and opportunities that we find in our path every day.
Do you have any advice for entrepreneurs who are looking to get their small business financed?
The number one thing is having your financial house in order. Make sure that your business and personal accounts are separate. Make sure you open a business checking account and that you’re tracking your expenditures. I wouldn’t say spend a lot of time building a big business plan and big budget – what’s more important is that it’s easy to see your performance so that businesses like Kabbage can see exactly how your business is performing
There are really two sides. It’s amazing to see how many businesses are running on post-it notes and they don’t even realize how much business they’re doing because they aren’t able to see a clear picture of their business performance. And then there’s the opposite of that where a number of small businesses are spending a ton of time hiring accountants and doing lots and lots of things to build up an infrastructure and will start on step 7 before starting on step 1.
How has it been for you as a female leader spearheading a billion dollar company in Atlanta?
I don’t often think about that. I guess because whether I’ve been in technology or financial services, it’s always been rare for me to encounter other women. For the most part, I just don’t notice it, but what I will say is I think we hire and look to hire a more diverse population in general because it’s important to us as a company. I don’t think it’s necessarily because I’m a woman, I think it’s because we naturally seek and value diversity as a company.
I’ve seen more and more women enter this industry, but I think the biggest challenge for most women is balancing personal and professional life. Women are the ones who have and tend to care for our children, we’re the ones who tend to be more invested in taking care of things domestically, even strong working women. My husband has been a stay-at-home-dad for 15 years since my son was born. I couldn’t have done this without his support and I don’t think most women have that kind of support at home. That is the biggest thing I wish for all women to have access – a strong support network so they can pursue their own careers.
Why did you choose Atlanta to launch this company?
Rob and I both lived here for a long time. I’ve been here for 24 years, he’s been here for 23, so our families were here, our kids were in school, we love living and working in Atlanta. The city is also a FinTech hub. Seventy percent of payment transactions that happen in the US flow through Atlanta-based companies so it’s a great place to hire talent, it’s a great cost of living, a really high quality of life, and a wonderful climate.
For the most part, it’s been very positive. It’s hard to raise money in Atlanta because the venture community here is small and there’s not a lot of competition. So it tends to drive down valuations of companies which is unfortunate. We had to seek funding from Silicon Valley investors and it’s hard for them to get behind Atlanta businesses. But I think altogether between Kabbage and Cardlytics and all the other FinTech companies that are here, we are really raising the profile of Atlanta and are excited about that.