Close-up of the logo for financial company Kabbage on paper on a light wooden surface, June 13, 2019.
Smith Collection / Gado | Stock photos | Getty Images
When the pandemic shut down Dawn Lindsay's family carpet cleaning business last year, the U.S. government's salary protection program provided a short but important lifeline. To get her $ 7,500 PPP loan, Lindsay turned to online lender Kabbage, a service her accountant recommended.
Lindsay, who runs the company with her husband Todd, said the process was smooth and easy. However, the second round of PPP funding that the Small Business Administration opened in January amid the ongoing economic crisis was a nightmare. That's because the Lindsays are now dealing with a very different cabbage than the one they remember.
American Express acquired Kabbage in August. Not included in the deal was Kabbag's loan book, which had become one of the largest in the country for the distribution of PPP funds. The orphaned department now known as K Servicing has left borrowers frustrated, confused, and searching for answers as their businesses get stuck by a thread.
"This is the worst business venture and we may lose our loan, which we desperately need for our business," said Dawn Lindsay of her home in Lula, Georgia, about 70 miles northeast of Atlanta. The couple started Esteamed Solutions in 2018 with retirement money from Dawn's years of waiting at tables in a sushi restaurant and Todd's career at Cargill. "We are up to our last savings," she said.
The Lindsays' struggles are known to thousands of Kabbage customers who were relieved last year when the fintech company came to the rescue with an easy-to-use online application that could walk them through a complicated process. Many banks and credit unions have struggled to meet the needs of beneficiaries under the government's $ 349 billion small business program.
As part of last year's Disruptor 50 series, CNBC picked Kabbage (24th on the 2020 list) and highlighted the company's rapid move to partner with small banks and raise PPP loans to provide emergency aid to restaurants, boutique hotels and beauty salons get and corner retailers. At the time of publication in June, Kabbage had funded over 130,000 companies with an average loan volume of approximately $ 29,000. Rob Frohwein, co-founder and then CEO of Kabbage, called it "Fintech's Shining Moment".
Rob Frohwein, CEO of Kabbage
Adam Jeffery | CNBC
By the end of the PPP's early renewal in August, the number of applications approved by the company rose to nearly 300,000, a total of $ 7 billion in small business funding, according to Kabbage. This makes PPP the second largest US PPP lender in terms of volume, Bank of America.
Later that month, American Express collapsed and bought "essentially everything" from Kabbage, including the Atlanta-based company's team and its small business lending technology and data platform.
When the PPP borrowers returned for their second loans in early 2021, it turned out that American Express had left a mess.
In an email to CNBC, American Express reiterated its earlier statements about the transaction and suggested that borrowers should contact K Servicing.
"This portfolio and associated maintenance obligations were retained by Kabbage, Inc., now known as K Servicing," said American Express. "Customers of these loans must contact K Servicing for assistance. We know this is a challenging time for small businesses and lenders managing PPP requests. We hope that K Servicing will find any service issues affecting its customers can solve quickly. "
Customers have turned to K Servicing in droves. It does not help. The Better Business Bureau was inundated with one-star ratings from borrowers complaining about the "negligence" and "incompetence" of K Servicing and making strong recommendations that others should "NOT USE YOUR SERVICES!" A Facebook page called K Servicing PPP Loan Support Group has over 2,000 members.
While American Express has distanced itself from K Servicing, existing Kabbage customers are understandably confused about who is responsible.
The new website says "K Servicing for Kabbage" at the top. It reads below, "In connection with American Express' acquisition of Kabbage, we established K Servicing to ensure consistency in managing your existing loans." At the bottom of the page is a disclaimer that says "Kabbage Funding is a trademark of American Express" relating to the loan transaction that the credit card company actually acquired.
K Servicing does not contain any names of executives or employees on its website. There are three phone numbers borrowers can use depending on whether they are a Kabbage customer, a PPP borrower, or a loan repaying customer.
The only available email address is firstname.lastname@example.org. CNBC sent multiple messages to this address and received no response. A customer service representative who answered a call to the PPP loan number was able to answer some questions on the condition that we don't use her name.
The spokeswoman said she works in a call center in the Philippines. She said she recently joined K Servicing and never worked for Kabbage. She pointed out that many loans are delayed because customers fail to provide proper documentation. When they switch banks, the loan could be marked for review. Unsurprisingly, she was unsurprised by the magnitude of the complaints, saying agents cannot give customers a timeframe to review.
When asked if she could provide details of who runs the company and how many people it employs, the employee asked a manager and returned a few minutes later. She said she couldn't provide a number of employees, but the CEO was Laquisha Milner, who is based in Atlanta. Milner is also listed as the CEO of K Servicing with the Better Business Bureau. According to her LinkedIn profile, Milner has been with Kabbage for almost nine years and has been Head of Program Management since July 2019.
Immediately after initial publication, Milner emailed the following statement:
K Servicing is and always strives to provide excellent service to our borrowers. PPP is a vital lifeline for a myriad of small businesses that are quickly adopted through a public-private partnership. K Servicing has met significant demand even amid ever changing program requirements. To this end, K Servicing continues to rapidly serve all eligible companies and address the qualification issues of some companies by taking appropriate measures to proactively identify and respond to inquiries by continuously improving the borrower's experience. The results are already being realized and will be continued.
"Jumped through every hoop"
The SBA opened the second PPP draw in January with Congressional approval to grant loans of up to $ 2 million each for up to $ 284 billion. To be eligible, companies must not have more than 300 employees and have seen gross revenues decrease by at least 25% in any quarter between 2019 and 2020.
The original deadline for the program was March 31, but legislators extended it by two months. As of March 28 that year, the SBA had issued nearly 3.6 million loans totaling nearly $ 212 billion.
When Lindsay applied for her second loan in January, she initially saw no reason to worry. Her application for an additional $ 7,500 was quickly approved, but Lindsay noticed on the online dashboard that her old bank account was linked to the loan. She called K Servicing and had them update her profile at her new bank.
After sending an invalid check to K Servicing, the lender sent two micro-deposits to her new account on Feb.1 to verify the account. Lindsay shared a statement with CNBC showing Kabbage deposits of 3 cents and 46 cents.
When Lindsay signed the loan documents, the money was transferred to her old bank account. Since then, she has called and emailed K Servicing dozens of times to resolve the situation. Despite sending utility bills, tax returns, and bank statements as requested by various call center representatives, the money was not transferred to her checking account.
Dawn and Todd Lindsay
According to the SBA, the forgivable loan was issued on Feb. 18 and the Lindsays will have to repay it if they cannot prove that the money was used on qualifying expenses such as payrolls and supplies. Since the loan has been approved and has a so-called E-Tran number from the SBA, Lindsay cannot cancel it and apply again elsewhere.
"We jumped through every tire they lent us on our behalf," she said.
A common complaint from Lindsay and other borrowers is that the representatives they reach at the various call centers are not helpful. You jot down information, promise to sort the matter out, and the customer won't hear anything until they call again and go through the same process with another employee. Weeks later there is no progress.
Time is running out
Jessica Edwards, an accountant, received her first $ 9,474 PPP loan through Kabbage last May after losing some of her top clients during the pandemic. Later that year, Edwards and her family moved from Montana to Utah after her husband's employer transferred him.
Edwards' second loan of the same amount was approved in January and paid out on February 4th. As with Lindsay, however, the money was transferred to an old account. Over two months later, she's still waiting and calling for updates several times a week. Twice in late March, Edwards spoke to representatives who requested additional information such as their 2019 taxes and an electricity bill.
According to the PPP rules, borrowers have 24 weeks to use the money for qualified expenses. More than a third of that time has passed and Edwards does not have the loan. She said she first used Kabbage because people raved about it on her network of accountants, and now they're all stumped.
"This wasn't what we saw before the takeover," said Edwards. "My experience before that was great."
K Servicing is far from the only PPP lender struggling to meet borrower needs. In addition to the size of the program and the sheer number of borrowers, the SBA is constantly making changes that require participating financial institutions to tweak their software and systems, said Eyal Lifshitz, CEO of online small business lender BlueVine.
For example, the SBA said in March that when applying for a loan, the self-employed could switch to using gross income instead of net profit, making them eligible for more money. According to Lifshitz, it took BlueVine several days to implement this functionality, forcing the company to source technical resources from other projects. Updating all SBA rules is costly and requires ongoing investment, he said.
"You can't do this without building muscle," Lifshitz said. "Some do it. Some are tired."
K Servicing tried to take the pressure off by partnering with fintech firm SmartBiz in late March to help borrowers with their second draws. The K Servicing website is now actively sending staff to SmartBiz, which will process the applications and get the loan from a small lender called Customers Bank.
"Currently, KServicing is not accepting new secondary draw requests for borrowers who took out their first PPP loan through Kabbage," says K Servicing. "Please use the link below to apply for your second drawing credit through our partner SmartBiz."
SmartBiz said in a statement emailed that K Servicing asked for assistance last month when the new formula for calculating loan amounts was introduced.
"SmartBiz Loans has been asked to process loan applications for KServicing's PPP clients because the new formula was implemented in their PPP loan application while it was not included in KServicing and it would potentially be a better outcome for their clients," the said Companies.
The first time Joanne Cleaver heard about SmartBiz was March 23, when she received an email from K Servicing informing her that the company "recently partnered with SmartBiz to provide PPP Process Second Drawing Requests "and directed her to a link to apply.
By then, Cleaver had already given up K Servicing and switched to a local credit union that processed her loan immediately.
Cleaver, who runs Wilson-Taylor Associates, a consulting firm in North Carolina, said she had no problem with her first loan of $ 16,773 last year. She applied for her second round in February and was informed in early March that the application was complete. However, on March 6, she was notified that her loan had been withdrawn. In multiple calls over the following week, she was told that "this is a known issue that affects many customers and we are working on it," said Cleaver.
On March 16, K Servicing announced that their loan had been declined. She said the company hadn't provided an explanation and told her there was no way to appeal.
A week later, after Cleaver moved elsewhere for her money, the email landed from K Servicing asking them to reapply through SmartBiz.
"They're constantly changing what they say about continuing the PPP process," said Cleaver. "And yet you can't work your way out of a wet paper bag."
Update: This story has been updated to include comments from K Servicing and SmartBiz that CNBC received after it was initially published.
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