Online Lender Kabbage Files for Bankruptcy
Kabbage, servicer and sub-servicer of small business Paycheck Protection Program loans, has announced that it has filed for for relief and protections under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
This is actually what’s left of the original company and is now called KServicing. It was one of the biggest lenders in the first year of the Paycheck Protection Program, processing more than $7 billion in loans.
“A Chapter 11 restructuring proceeding provides the Company with beneficial flexibility and protections to consummate the winding down of its operations in an efficient and effective manner and will also provide a framework for resolution with key stakeholders and a possible global settlement of outstanding disputes.” the company said in s statement.
Founded in 2010 and headquartered in Atlanta, Georgia, Legacy Kabbage (a predecessor of KServicing) was one of the leading fintech providers of working capital to small businesses for over a decade. On August 16, 2020, much of the Company’s business was sold to American Express. As a result of the merger, KServicing now operates in a limited capacity as a servicer of PPP Loans and a software services provider for lenders of PPP Loan.
Over the last two years, the company has faced scrutiny over its lax approval process for loans that it should have known were fraudulent. It is numerous federal investigations into its PPP lending practices. That includes the House Select Subcommittee on the Coronavirus Crisis, the Federal Trade Commission, the U.S. Small Business Administration and two U.S. Attorneys, working in conjunction with the U.S. Department of Justice.
KServicing also blames American Express for some of its problems, saying that Amex failed to deliver necessary documents and loan forgiveness support after the merger.
The bankruptcy filings show that KServicing has only 19 full-time employees and $11 million in available cash on hand.
The case is Kabbage Inc., 22-10951, U.S. Bankruptcy Court for the District of Delaware.