Kabbage Post-Mortem: When “Fast” Becomes a Fragile
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Kabbage Post-Mortem: When “Fast” Becomes a Fragile

Updated: 3 hours ago


Kabbage is a modern example of what can happen when fintech design is brilliant, but fintech risk management is brittle.


At the onset of the COVID-19 pandemic, I was still working in corporate as a Vice President in Global Corporate & Investment Banking. By March 2020, we were mandated to shelter in place, yet we had a slate of clients in desperate need of liquidity as international supply chains broke down and sales ground to a screeching halt. By June, I was tapped to work on a newly formed organization tasked with processing Paycheck Protection Program (PPP) loan forgiveness.


We banded together to bring order and execution to a nation in crisis. Our mission was to operate with precision, discipline, and deep commitment to understanding daily-evolving requirements and protocols.


When I left corporate in October of that same year to build what would become Blaze Group®, I immediately began sharing PPP knowledge with my community across social media. Picture a whiteboard, dry-erase marker, tripod, and live Q&A sessions streamed from my living room. It quickly became clear that this level of practical support, education, and access from banking practitioners was largely absent in the communities I come from. Communities like mine were grateful for responsive, targeted guidance in a moment of real need.


One fintech name that surfaced prominently during this same period was Kabbage.


Kabbage was processing PPP loans and forgiveness for small business owners without requiring pre-existing banking relationships. Their interface was intuitive. Their instructions were clear. Their processing times were fast. It was during this moment that fintech lenders demonstrated, unequivocally, how access changes outcomes. A working paper titled "Lender Automation and Racial Disparities in Credit Access" found that fintech lenders accounted for 53.6% of PPP loans to Black-owned businesses, despite issuing only 17.4% of PPP loans overall. Their ability to reach traditionally excluded communities highlighted the power of automation, ease of access, and reduced reliance on branch-based banking.


In that moment, Kabbage was positioned to be a winner.


They had spent a decade building seamless digital origination, alternative data underwriting, and frictionless servicing. They were providing business funding in under seven minutes.


And yet, the Kabbage that soared in prominence during the pandemic ultimately became KServicing Wind Down Corp., filed for bankruptcy in October 2022, and by March 2024 agreed to a settlement of up to $120 million to resolve U.S. government allegations tied to PPP processing and fraud controls.


Let’s examine what happened.



Pre-Pandemic Kabbage: Data-Powered Merchant Lending


Kabbage launched in 2009 as an Atlanta-based fintech enabling online merchants, which were sellers on platforms like eBay, Etsy, and Amazon, to access capital they otherwise wouldn’t qualify for at traditional banks.


Many small businesses lacked the collateral, longevity, or credit profiles banks required. Furthermore, they did not want to risk personal assets, like their homes, to qualify for financing.


Kabbage disrupted this landscape by offering a painless, fast path to working capital. Their core innovation was an engineered alternative to traditional credit scoring. Their innovative technology was granted multiple patents.


Kabbage earned revenue through fees charged on advances, which varied based on duration (up to six months) and repayment risk. Rates ranged from 2% to 7% of the original advance amount, depending on monthly revenue and credit quality. The company supported merchants operating on platforms including eBay, Amazon, Yahoo, Etsy, Shopify, Magento, and PayPal.


Kabbage’s leadership was explicit: they wanted Kabbage’s internal score to matter more than traditional credit scores. Credit decisioning was powered by dozens of data sources like payroll, accounting systems, ecommerce performance signals, customer traffic and reviews, inventory and pricing comparisons, and even UPS shipping data.


Kabbage excelled at:

  • Alternative data underwriting

  • Speed to disbursement

  • User experience (UX)


By September 2012, Kabbage had raised $56 million, including a $30 million Series C round. The company was fueling more than $800 million in annual sales for its customers, with clients taking an average of 10 advances per year.


In 2013, Kabbage raised an incremental $75 million in debt financing to provide more advances to its customer base.


In 2014, it secured an additional $270 million receivables-backed credit facility, lowering funding costs and enabling rapid expansion. At that time, advances had grown 298% year-over-year, even as overall small-business lending declined.


The innovation was incredible. The growth was undeniable.



The Pandemic Pivot: Clients in Liquidity Stress


At the onset of COVID-19, Kabbage drew intense criticism for cutting or suspending credit lines, reportedly without notice in some cases. (April 2020)


As a former underwriter, I can see how this scenario unfolds. Cash needs shift rapidly — from growth capital to survival capital. You are no longer underwriting a carefully-sized risk-reward tradeoff; you are underwriting endurance amid uncertainty.


Financial institutions sit with businesses during the most intimate moments of their growth journeys. How they show up during contractionary periods matters deeply, because people never forget how they are treated when conditions deteriorate. I remember hearing this lesson directly from the CEO of the institution I worked for, spoken from the stage at our headquarters when I joined in the fall of 2012. This was on the heels of a financial crisis that would define a generation.


Kabbage appeared to mishandle this moment.


Customers logged into their accounts only to find credit lines suspended.

No emails,

No calls.

No advance notice.


And by this time in 2020, Kabbage’s customer base had expanded far beyond online merchants. They now served software companies, heavy-equipment contractors, medical training firms, and more.


Risk management requires right-sizing exposure. That's textbook. But it also requires ethics. The goal is to ensure both the institution and the client make it through crisis periods. Even when credit must be cut, transparency and care are essential.


Instead, Kabbage abruptly shut down its core lending business — and pivoted.



The PPP Surge and the Shift in Risk


In April 2020, the Treasury Department approved nonbank fintech companies like Kabbage to participate directly in the $349 billion Paycheck Protection Program (PPP), which allowed companies to apply for 10 weeks worth of funding to pay their employees and soften the blow caused by the pandemic. These loans were federally guaranteed if requirements were met — meaning minimal balance-sheet credit risk for lenders — while offering processing fees tied to loan size.


Against this backdrop, Kabbage pivoted fully into originating PPP loans.


To support the shift, the company furloughed a significant number of employees, paused its traditional lending operations, and rapidly built partnerships with small banks that lacked the automation needed to handle unprecedented stimulus demand.


PPP volume at Kabbage exploded.


By June 2020:


“This has been fintech’s shining moment,” CEO Rob Frohwein said at the time. “Ten years ago, there’s zero chance that most businesses we serve would’ve gotten funding. The banks would’ve only worked with much larger small businesses out there.”


In many ways, he was exactly right.


So many small businesses were overlooked during the first PPP tranche that Congress authorized a second round with stricter eligibility — explicitly to reach smaller, underserved firms.


I remember this clearly. The second draw was meant to correct inequities in the first. And in that moment, Kabbage was leading the way in removing friction and pain for overlooked small businesses.



Where It Unraveled


The perception of zero credit risk appears to have introduced dangerous complacency.


PPP removed credit loss risk, but swelled other risks: operational, compliance, fraud, and reputational risk.


In August of 2020, American Express announced it would acquire “substantially all” of Kabbage. That was to include the team, technology platform, and products — but explicitly stated the pre-existing loan portfolio was not included.


That portfolio was left to operate as a standalone holding company under the name KServicing. It included more than 60,000 PPP loans, ongoing servicing obligations, and a growing backlog of forgiveness applications.


Interesting.


By late 2020, the federal investigations began. Kabbage had processed more than $7 billion in PPP loans.


By October 2022, KServicing filed for bankruptcy.


At that time, the company had:

  • The company had 19 full-time employees

  • $11 million in cash

  • Oversight of 48,000 PPP loans totaling $1.3 billion

  • Forgiveness for nearly 60,000 loans was stalled amid investigations


In May 2024, Kabbage agreed to a settlement of up to $120 million. The U.S. alleged Kabbage knowingly removed underwriting steps, set inadequate fraud thresholds, discouraged substantiation, and prioritized fee-driven volume.



Excerpt from archives of the U.S. Department of Justice:


“When the nation was facing a pandemic-induced crisis, Kabbage received tens of millions of dollars through the PPP to help lend taxpayer funds to businesses in need. Instead of safeguarding those funds, Kabbage doled out inflated and fraudulent loans, in an effort to maximize its profits,” said Acting U.S. Attorney Joshua S. Levy for the District of Massachusetts. “Then, Kabbage sold its assets and left the remaining company so low on cash that it ultimately went bankrupt, leaving taxpayers to take the loss for Kabbage’s conduct. This office will continue pursuing any company or individual, like Kabbage, that took advantage of the PPP.”


In 2025, Kabbage Inc.'s bankruptcy estate sued former executives, SoftBank, and American Express, alleging the PPP pivot was used to secure a sale while orphaning liabilities.



What Remains


Post-acquisition, American Express used the Kabbage platform as the foundation for its small-business cash-flow tools.


The technology survived.

Kabbage did not.



Final Reflections


This is a cautionary tale in a nascent, essential, and deeply technical sector of our economy.


Growth at all costs is not a strategy.

Speed without guardrails is folly.


Fintech innovation can dramatically expand access — but only when paired with disciplined, technically rigorous risk management. As growth accelerates, the sophistication of risk identification, mitigation, and governance must accelerate alongside it. This is precisely why we embed intentional, practical modules on risk mitigation throughout the Blaze Institute curriculum.


I was a genuine admirer of Kabbage and grateful for the access it provided to my community. What unfolded in the post-pandemic period has stayed with me, and this deep dive was as much about understanding how things unraveled as it was about reflecting on why.


I hope this was a helpful read.



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