Small U.S. business online lender Kabbage Inc is in talks to raise a new round of equity funding that could be used for potential acquisitions at a time when many of its peers face funding challenges, people familiar with the matter said.
The move comes as online lenders are increasingly encroaching on the turf of traditional banks. However, growth in the industry has slowed as some online lenders have struggled to offload loans many institutional investors view as risky.
Privately held Kabbage is holding talks with investment firms about raising a few hundred million dollars in the new round, the sources said this week.
Kabbage, based in Atlanta, could not immediately be reached for comment.
One of the acquisition targets under consideration by Kabbage is rival On Deck Capital Inc, which has market capitalization of $321 million, according to one of the sources.
The sources cautioned that no decisions have been taken and asked not to be identified because the deliberations are confidential.
New York-based On Deck Capital declined to comment.
Kabbage runs a platform that provides loans to small businesses in minutes. Its existing investors include Reverence Capital Partners, SoftBank Capital, Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund, ING, Santander InnoVentures, Scotiabank and TCW/Craton.
Banco Santander SA partnered with Kabbage last year to provide loans to small businesses in Britain, while JPMorgan Chase & Co works with On Deck.
On Deck shares have fallen more than 80 percent since it went public in December 2014. On Deck posted its fifth consecutive quarterly loss last month, and said it had to set aside more money for future losses after determining its calculations in its internal models were off.
As a private company, Kabbage does not report earnings publicly.
Earlier this month, it said it priced the largest asset-backed securitization of small business loans in the online lending industry, packaging and selling $525 million worth of loans to investors. Kabbage said this would allow its volume of lending to exceed $2.7 billion.
On Deck said earlier on Wednesday that it had amended its asset-backed revolving credit facility with Deutsche Bank to extend its maturity date to March 2019 and to increase its borrowing capacity by $52 million, to a total of up to $214 million.
(Reporting by David French and Anna Irrera in New York)