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Research Reveals Kabbage Fills Gaps in Cash Flow for Minority-Owned Small Businesses

Independent studies find FinTech solutions improve credit inclusion for U.S. small businesses

minority, diversity, business, opportunity

The results of two independent studies analyzing over 40,000 U.S. small businesses collectively demonstrate how Kabbage bridges cash-flow gaps for small businesses by removing barriers to credit access. By observing different challenges small businesses face, these studies illustrate how Kabbage expands credit access for minority-owned firms.

FinRegLab Report: The Use of Cash-Flow Data in Underwriting Credit

FinRegLab, an independent, nonprofit research organization, found the use of cash-flow data in underwriting is as predictive as credit scores and a more inclusive variable in deducing creditworthiness. The study found FinTech companies such as Kabbage using cash flow data to determine creditworthiness broadens access to credit for small businesses that have historically struggled to access credit, including those with low credit scores, thin files, minority-owned businesses, and low-income borrowers. 

FinRegLab concluded cash-flow underwriting is particularly inclusive for small business owners who primarily rely on their consumer credit score to secure business loans, as the report found 45 to 60 million Americans lack sufficient credit history to generate a reliable credit score. The result is more diversified and improved financing opportunities for all small businesses.

Federal Reserve Bank Consumer & Community Context: Mind the Gap: Minority-Owned Small Businesses’ Financing Experiences in 2018

A co-authored report published in November 2019 by the Federal Reserve Bank of Atlanta’s Community and Economic Development Department and the Federal Reserve Bank of Cleveland’s Supervision and Regulation Department found that credit-worthy black-owned small businesses are around 20 percent less likely than credit-worthy white-owned small businesses to receive approval for financing at both large and community banks. 

Even if they are approved for credit, minority-owned businesses are less likely to be approved for the amount they sought. The study found the share of minority-owned businesses applying to access credit online increased from 34 percent in 2016 to 43 percent in 2018 (Source: Small Business Credit Survey, Federal Reserve Banks).

These trends show that Kabbage and its automated underwriting algorithm improves financing experiences for underserved small businesses by only measuring their true business performance to make credit decisions, creating a blind application process. With Kabbage, small businesses connect their real-time business data to receive a fully-automated funding decision in minutes, eliminating hurdles that contribute to the struggles minority-owned firms face in the traditional application process. 

“The small business financing environment plays an important role in encouraging the success of all groups regardless of race or class and ensuring long-term economic growth,” said Kabbage Director of Domestic Policy, Christian Warner. “These reports demonstrate the progress we have made thus far towards equal and expanded access to credit for all small businesses and that we are serving our customers and broader social issues regarding inclusion and diversity.”

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