The Six-Minute Loan: How Kabbage Is Upending Small Business Lending -- And Building A Very Big Business...

This story appears in the May 25, 2015 issue of Forbes.

When Jennifer Kirk, who owns Posh Puppy Boutique, a pet grooming and supply shop in Rocklin, Calif., had an opportunity to expand her business last year, she turned first to her bank, which made her wait three weeks before rejecting her loan application. Then she learned about Kabbage, which let her apply online–linking directly to her bank, PayPal and QuickBooks accounts (as well as her social media feeds)–and then ran an automated program to assess her creditworthiness.

Six minutes later she had an answer: She was approved to borrow up to $50,000 on a six-month loan, and she could transfer part or all of those funds to her PayPal account whenever she needed them. “The money was instantly available to me,” says Kirk. But at a price–an annual percentage rate of about 27%.

Today Kabbage offers borrowers lines of credit for as much as $100,000, with loans payable over six months. The average line of credit is $25,000, and the average borrower takes seven or eight loans a year, totaling $50,000. Since its start in 2009, the company has lent more than $750 million to small businesses, and it expects to lend $1 billion in 2015. It also expects to be profitable this year, with revenue exceeding $100 million, up some 200%.

Those numbers put Kabbage among the leaders of the increasingly crowded field of alternative lenders, says Smittipon Srethapramote, a vice president at Morgan Stanley, who researched the space prior to the initial public offering of OnDeck, a Kabbage competitor. “It’s well-known that banks have pulled back from making loans to small businesses since the recession,” Srethapramote says. “Kabbage and other lenders have filled the void.” Not unlike Uber and Airbnb, they have created a largely unregulated industry that is making a lot of money.

The seeds of Kabbage, founded in 2008 and based in Atlanta, were sown by Rob Frohwein, an intellectual property lawyer. Now CEO, Frohwein saw how much data were becoming accessible via the cloud and that companies like eBay and PayPal were providing application programming interfaces, or APIs, that a lender could use to get real-time access to a business’ customer-transaction data. Kabbage, Frohwein says, put the two concepts together.

Before starting the company, he called Kathryn Petralia, who worked for a financial services firm and was an expert in credit and payments, and Marc Gorlin, a serial entrepreneur with venture capital connections. In 2009 the three cofounders created a plan to finance Kabbage with venture capital, but a road trip to California proved fruitless. Instead, they raised $500,000 by issuing a convertible note, and after hiring employees and leasing office space, they got $1.5 million from a group of 45 angel investors. They made their first 100 small-business loans in 2010. That December Kabbage closed its first venture round and has since developed relationships with Silicon Valley Bank, Victory Park Capital and now Guggenheim Partners to provide the capital it loans out.