Kabbage, Inc., hit by PPP loan issues, files for Chapter 11

Kabbage, Inc. has filed for Chapter 11 bankruptcy protection, the company announced. The company, also known as KServicing, was the loan book business of Kabbage before that company agreed to be bought in 2020.

Why it matters: The bankruptcy proceedings show that the Paycheck Protection Program (PPP), the government's pandemic support that was meant to be fintech's moment to shine, is what led to Kabbage, Inc.'s problems.

Of note: Softbank invested $250 million in the company in 2017 and remains one of Kabbage, Inc'.s largest shareholders.

• In addition to Softbank, other shareholders include Blue Run Ventures, Mohr Davidow Ventures and Thomvest Ventures.
• Kabbage, Inc.'s creditors include Customers Bank and the Federal Reserve Bank of San Francisco.

Details: Kabbage, Inc. said in the Delaware filing that it has estimated assets of between $500 million to $1 billion and liabilities in the same range.

Flashback: Kabbage's PPP loan unit was the second largest PPP lender in the country by mid-2020. American Express agreed to acquire Kabbage in 2020 but without the company's loan portfolio.

Yes, but: By May 2021, federal regulators had stepped into the program amid allegations of fraudulent businesses receiving the loans. The Justice Department launched an investigation into several fintechs, including Kabbage, Inc., to examine allegations of mistakes made on billions of dollars of pandemic aid aimed at struggling businesses.

What they're saying: “Processing the remaining PPP Loans has presented a number of challenges for the company, particularly in light of the extreme administrative and cost burden placed on the company,” the bankruptcy court documents read, citing the DOJ probe.