How entrepreneurs who are freaking out over their cash flow can use Kabbage, a startup that's raised $2.5 billion and is lending struggling companies up to $250,000

• As financial and tech companies race to expand their small business credit products, one SoftBank-backed fintech CEO is actively looking for ways to issue customers less money.
• Rob Frohwein and his cofounders started Kabbage in 2009 to offer automated, fast lines of credit of up to $250,000 for small businesses struggling to get financing from traditional banks.
• Frohwein told Business Insider he sees small businesses "borrow too much, they borrow too soon, and they hold on to it for too long."
• Over a decade of data now enables Kabbage to not just model how individual borrowers have performed, but also to better forecast their specific needs for cash.
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Cash is the lifeblood of small businesses. And like blood, it has to flow in order to keep a company alive and healthy.

It's obvious that you must have enough cash on hand to operate, but having too much excess can cause other problems.

Kabbage cofounder and CEO Rob Frohwein sees a lot of small businesses grapple with this balance-sheet balancing act, and he's working on a solution for both sides of the ledger.

"We've looked at data from [small businesses] borrowing from us, and they borrow too much, they borrow too soon, and they hold on to it for too long," he told Business Insider in an interview.

Frohwein and his cofounders started Kabbage in 2009 to offer automated, fast lines of credit of up to $250,000 for small businesses that were struggling to get financing from traditional banks.

The SoftBank-backed fintech company has since raised over $2.5 billion and is a leader in the rapidly expanding small business financing space.

But while that rise in lending is solving one problem of liquidity, Frohwein says he has noticed a troubling trend that's hurting the bottom line of the businesses he set out to help.

Data-driven decision making

The same tools and insights that powered Kabbage's data-driven lending model revealed that his customers were borrowing more heavily than was necessary to fund their operations.

Frohwein has been in their position and is sympathetic to their struggle. He previously owned businesses in legal services and commercial publishing.

"It's a giant pain in the butt to try to figure all that out," he said, and recalled the frantic search for a missing check and the sinking feeling of trying to meet payroll while big invoices were still outstanding.

Borrowers give Kabbage a direct view into their bank and credit card accounts in order to be approved, and that window enables nearly real-time monitoring of their transactions.

Think of it like a FitBit or Apple Watch heart-rate monitor, but for small business finance.

"We've had all this great data on our small businesses and the cash flowing in and the expenses flowing out, and we've always utilized it for internal purposes," he continued. "Now's our time to actually turn that information back over to the customer and say, here's how you should think about borrowing from Kabbage."

And it's the expenses side of the equation that Frohwein says gives his company an advantage over other financial services who generally have access only to part of the picture.

Cash flow as a service

Over a decade of data now enables Kabbage to not just model how individual borrowers have performed, but also to better forecast their specific needs for cash.

Getting that right could lead to valuable savings for customers in terms of time, stress, and (most importantly) money.

Frohwein describes his vision with phrases like "autonomous treasury management" and "cash flow as a service," neither of which exist yet in the industry, but he says they will eventually be commonplace terms.

It's a vision that builds on the digital innovation that is still disrupting the consumer banking business.

"Most lending systems are set up so that they can only make one load at a time. And consequently, you end up getting pushed in more capital than you actually need right now," Frohwein said. "Now our aim is to remove the stress for the small business owner who just goes and takes too much money because they don't feel like figuring it out."

A rush to reach small business borrowers

The financial technology, or fintech, space is seeing a huge surge from legacy institutions and startups alike. Even non-financial companies like Amazon and Uber issuing heaps of credit for small businesses.

When over 99% of businesses are small businesses, ostensibly similar finance companies see plenty of room to grow.

Like Kabbage, BlueVine also offers lines of credit, but BlueVine CEO Eyal Lifshitz told Business Insider that product is just one piece of a more comprehensive and growing menu of financial services.

Lifshitz also added that his company is targeting a slightly different customer profile, one that is a little larger in terms of employees and revenue.

Where BlueVine offers invoice factoring lines up to $5 million, Kabbage meanwhile is focused on smaller amounts, with average terms of less than $12,000 and shorter than 10 months, according to Kroll's.

"We believe if we can help them borrow the exact amount of money they need, only when they need it, and only hold on to it for as long as they need it, then they'll run a better business," he said.

Plus, he added, "better businesses will have a higher repayment rate."

And that's one thing that financiers value most.