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How to Calculate True Cost of Capital for a Kabbage Loan Offer

By StreetShares on March 30, 2017

Decoding a Kabbage business loan offer

As a small business owner, you’re most likely aware of a lot of lending options such as applying at a traditional bank, asking friends and family members or bootstrapping. If you’re here visiting the StreetShares blog, you’re obviously aware that online lending is also a great option for small businesses who need up to a $100,000 loan or a line of credit or $500,000 for government contractor invoice factoring. 

However, understanding your different loan offers can be overwhelming. Over the next several weeks, we’re going to provide examples of how each online lender, including Kabbage and OnDeck, break down their loan offers. These blog posts will help veteran business owners conduct your own apples-to-apples comparison of different business loan offers.

Kabbage Loan Offers

For any loan offer, you’ll want to check the Annual Percentage Rate (APR) to understand the true cost of capital. This metric should be used to compare all loan offers because it takes every fee associated with the loan and expresses it as a complete annual calculation.

Kabbage offers lines of credit on 6 or 12-month terms. They state they don't charge interest but they charge monthly fees, which makes it difficult to understand the exact cost of capital on the line of credit. Kabbage charges higher fees for the first few months of the term and a lower fees for the last months of the term. No interest rates are displayed on their offers. Use the calculators below to calculate the APR on your Kabbage business loan offers.

Calculate the APR on Your 6-month Kabbage offer:

  1. Enter your line of credit amount in green
  2. Enter your fee for the first two months in green
  3. Enter your fee for the next four months in green
  4. View your APR in the yellow box

You’ll see the fee is being charged on the original loan amount and not the remaining balance. (Scroll to the right to see the cost of credit and the total cost of the loan.) See below for further explanation.



 

Calculate the APR on Your 12-month Kabbage offer:

  1. Enter your line of credit amount in green
  2. Enter your fee for the first six months in green
  3. Enter your fee for the next six months in green
  4. View your APR in the yellow box

You’ll see the fee is being charged on the original loan amount and not the remaining balance.(Scroll to the right to see the cost of credit and the total cost of the loan.) See below for further explanation.

 



What Does All of This Mean?

Factor rates are calculated one time based on the original principal of your loan. If you are looking at a six-month term loan or line of credit, Kabbage charges a higher fee during the first two months of the term and a lower fee for the rest of the four months. 

Additionally, Kabbage loan offers show the total payment of the loan over the six-month term, but they don’t tell you upfront how much you’re actually paying in the Annual Percentage Rate (APR). You'll find this information in the fine print. The APR takes every fee associated with the loan and expresses it as a complete annual calculation.

See also: How to Understand Business Loan Rates and Fees

Many lenders including StreetShares charge interest on the outstanding pricinple of the loan and not the original loan amount. The outstanding principal balance decreases with time and hence the interest you pay on the loan decreases on a regular basis. 

As you’ll see in the calculators above, Kabbage charges all of its fees on the original principal of the loan amount and not the outstanding balance. In this example, the first payment is $10,333.33, including the principal payment and the fee payment of $2,000. Then, payment in month two should be $50,000 minus $10,333.33 multiplied by 4%, which is equal to $1,586.67. Monthly fees on payments should decrease as you pay off your loan. In the Kabbage calculators above, you’ll see that’s not the case.

Speak to a Loan Specialist

Our team strives to provide our small business owners with the most transparent experience when deciding on a loan offer. StreetShares will disclose every fee and interest rate on your loan offer and shows the APR. We also want to help you decode other loan offers so you can make your own comparison and choose what's best for your business. Contact us with questions on your loan offers or apply for a business loan or line of credit today to see how we compare to your current offer.

Quest

Topics: Veteran Small Business, Funding Your Business

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