Raphael Stevens

In this articleAXPClose-up of logo for finance company Kabbage on paper on a light wooden surface, June 13, 2019.Smith Collection/Gado | Archive Photos | Getty ImagesWhen the pandemic shut down Dawn Lindsay’s family carpet cleaning business last year, the U.S. government’s paycheck protection program provided a brief but essential lifeline. To get her $7,500 PPP loan, Lindsay turned to online lender Kabbage, a service recommended by her accountant.Lindsay, who runs the company with her husband, Todd, said the process was smooth and easy. But the second round of PPP funding, which the Small Business Administration opened up in January amid the ongoing economic crisis, has been a nightmare. That’s because the Lindsays are now dealing with a very different Kabbage from the one they remember.American Express acquired Kabbage in August. Not included in the deal was Kabbage’s loan book, which had become one of the biggest in the country for distributing PPP funds. The orphaned division, now known as K Servicing, has left borrowers frustrated, confused and searching for answers as their businesses hang on by a thread.”This is the worst company and we may lose our loan that we desperately need for our business,” said Dawn Lindsay from her home in Lula, Georgia, about 70 miles northeast of Atlanta. The couple started Esteamed Solutions in 2018 with retirement money from Dawn’s years of waiting tables at a sushi restaurant and Todd’s career at Cargill. “We’re down to our last bit of savings,” she said.The Lindsays’ struggles are familiar to thousands of Kabbage customers, who were relieved last year when the fintech company came to their aid with an easy-to-use online application that could walk them through a complicated process. Many banks and credit unions were struggling to meet the needs of recipients in the government’s $349 billion program for small businesses.As part of its Disruptor 50 series last year, CNBC included Kabbage (ranked 24th on the 2020 list) and highlighted the company’s rapid move to partner with small banks and jump into PPP loans, helping get emergency assistance to restaurants, boutique hotels, beauty shops and corner retailers. At the time of publication in June, Kabbage had delivered funding to over 130,000 businesses, with an average loan size of about $29,000. Rob Frohwein, Kabbage’s co-founder and then CEO, called it “fintech’s shining moment.”Rob Frohwein, CEO of KabbageAdam Jeffery | CNBCBy the end of the PPP’s early extension in August, the number of applications the company had approved swelled to almost 300,000, totaling $7 billion in small business funding, according to Kabbage, making it the second-largest U.S. PPP lender by volume, behind only Bank of America.Later that month, American Express swooped in, buying “substantially all” of Kabbage, including the Atlanta-based company’s team as well as its small business lending technology and data platform.But when PPP borrowers returned for their second loans in early 2021, it became apparent that American Express had left a mess behind.In an email to CNBC, American Express reiterated its past statements about the transaction and suggested borrowers reach out to K Servicing.”That portfolio and associated servicing obligations were retained by Kabbage, Inc., which now operates as K Servicing,” American Express said. “Customers of these loans need to contact K Servicing for support. We know this is a challenging time for small businesses and lenders that are managing PPP requests. We hope K Servicing can quickly resolve any servicing issues impacting its customers.”Customers have been contacting K Servicing in droves. It’s not helping. The Better Business Bureau has been flooded with one-star reviews from borrowers complaining of K Servicing’s “negligence” and “incompetence” and offering strong recommendations that others, “DO NOT USE THEIR SERVICES!” A Facebook page called K Servicing PPP Loan Support Group has over 2,000 members.While American Express has distanced itself from K Servicing, existing Kabbage customers are understandably confused about who’s accountable.The new website reads “K Servicing for Kabbage” at the top. Further down it says, “In connection with American Express’s acquisition of Kabbage, we’ve established K Servicing to maintain consistency in the way you manage your existing loans.” And the bottom of the page includes a disclaimer that says “Kabbage Funding is a trademark of American Express,” referring to the lending operation that the credit card company actually did acquire.K Servicing doesn’t include the names of any executives or employees on its website. There are three phone numbers for borrowers to use, depending on whether they’re a Kabbage customer, PPP borrower or repaying a loan.The only email address available is [email protected]. CNBC sent multiple messages to that address and didn’t get a response. A customer support representative who answered a call to the number for PPP loans was able to answer some questions on the condition that we not use her name.The rep said she was working out of a call center in the Philippines. She said she joined K Servicing recently and never worked for Kabbage. She indicated that many loans are being delayed because customers don’t provide proper documentation. If they change banks, the loan could get flagged for review. She was unsurprised by the extent of the complaints and said that representatives can’t provide a timeframe to customers for how long a review will take.When asked if she could provide any details on who runs the company and how many people are employed there, the rep checked with a supervisor and returned a few minutes later. She said she couldn’t give a headcount number, but said the CEO is Laquisha Milner, who’s based in Atlanta. Milner is also listed as CEO of K Servicing at the Better Business Bureau. According to her LinkedIn profile, Milner has worked at Kabbage for almost nine years, with the title of head of program management since July 2019.Just after initial publication, Milner emailed the following statement:K Servicing is and has been committed to providing excellent service to our borrowers. PPP is a critical lifeline to countless small businesses, rolled out quickly through a public/private partnership.  K Servicing has met significant demand even under ever-changing program requirements. To that end, K Servicing continues to rapidly serve all eligible businesses while addressing qualification challenges for some by putting proper measures in place to proactively identify and respond to requests through the continuous improvement of the borrowers’ experience.  The results are already being realized and will continue.’Jumped through every hoop’The SBA opened the second draw process for PPPs in January, with authorization from Congress to issue up to $284 billion in loans of up to $2 million each. To be eligible, companies must have no more than 300 employees and have experienced at least a 25% reduction in gross receipts in a quarter between 2019 and 2020.The original deadline for the program was March 31, but lawmakers extended it by two months. Through March 28, the SBA had awarded almost 3.6 million loans this year worth a total of nearly $212 billion.When Lindsay applied for her second loan in January, she at first saw no reason for concern. Her application for another $7,500 was quickly approved, but Lindsay noticed on the online dashboard that her old bank account was linked to the loan. She called K Servicing and had them update her profile with her new bank.After she sent a voided check to K Servicing, the lender sent two microdeposits to her new account on Feb. 1, confirming the account. Lindsay shared a bank statement with CNBC, showing deposits from Kabbage of 3 cents and 46 cents.Still, when Lindsay signed the loan documents, the money was sent to her old bank account. Since then, she’s called and emailed K Servicing dozens of times to clean up the situation. Despite sending utility bills, tax returns and bank statements, as requested by various call center representatives, the money hasn’t been moved to her current account.Dawn and Todd LindsayDawn LindsayAccording to the SBA, the forgivable loan was issued on Feb. 18, and the Lindsays are required to repay it if they can’t show that the money has been used for qualified expenses like payroll and supplies. Because the loan has been approved and has what’s known as an E-Tran number from the SBA, Lindsay can’t cancel it and reapply elsewhere.”We have jumped through every hoop they have given us on a loan in our name,” she said.A common complaint from Lindsay and other borrowers is that the representatives they reach in the various call centers are unhelpful. They take down information, promise they’ll elevate the matter, and the customer hears nothing until calling again and going through the same process with another rep. Weeks later, there’s no progress.Time is running outJessica Edwards, an accountant, received her first PPP loan of $9,474 through Kabbage in May of last year, after losing some of her top clients during the pandemic. Later in the year, Edwards moved with her family from Montana to Utah after her husband’s employer transferred him.Edwards’ second loan of the same amount was approved in January and disbursed on Feb. 4. However, like with Lindsay, the money was sent to an old account. Over two months later, she’s still waiting and has been calling multiple times a week for updates. Twice in late March, Edwards spoke with representatives, who requested additional information, like her 2019 taxes and a utility bill.PPP rules give borrowers 24 weeks to put the money to work on qualified expenses. That period is more than one-third expired and Edwards doesn’t have the loan. She said she first used Kabbage because people in her network of accountants raved about it, and now they’re all perplexed.”This wasn’t what we were seeing before the acquisition,” Edwards said. “My experience before was great.”K Servicing is far from the only PPP lender that’s struggling to meet borrower needs. In addition to the size of the program and the sheer number of borrowers, the SBA is constantly making changes that require participating financial institutions to tweak their software and systems, said Eyal Lifshitz, CEO of online small business lender BlueVine.For example, in March the SBA said that self-employed individuals could switch to using gross income instead of net profit when applying for a loan, making them eligible for more money. Lifshitz said it took several days for BlueVine to build in that functionality, forcing the company to pull engineering resources from other projects. Staying up to date with all of the SBA’s rules is costly and requires ongoing investment, he said.”You can’t do this without putting muscle into it,” said Lifshitz. “Some are doing it. Some are tired.”K Servicing tried to relieve some pressure by partnering with fintech company SmartBiz in late March to help borrowers with their second draws. K Servicing’s website now actively sends people to SmartBiz, which processes the applications and gets the loan from a small lender called Customers Bank.”At this time, KServicing is not accepting new second draw loan applications for borrowers that took their first PPP loan through Kabbage,” K Servicing says. “Please use the link below to apply for your second draw loan through our partner, SmartBiz.”SmartBiz said in an emailed statement that K Servicing asked for its support last month, when the new formula for calculating loan amounts was introduced.”SmartBiz Loans was asked to process loan applications for KServicing’s PPP customers because the new formula was being implemented in their PPP loan application while it wasn’t in KServicing’s and this would potentially be a better outcome for their customers,” the company said.The first time Joanne Cleaver heard of SmartBiz was March 23, when she received an email from K Servicing telling her that the company “recently partnered with SmartBiz to process PPP second draw applications” and directing her to a link where she could apply.By that time, Cleaver had already given up on K Servicing and moved onto a local credit union that processed her loan right away.Cleaver, who runs Wilson-Taylor Associates, a consulting firm in North Carolina, said she had no problem with her first $16,773 loan last year. She applied for her second round in February and was notified in early March that the application was complete. But on March 6, she was told that her loan was withdrawn. In multiple calls the following week, she was told that “it was a known issue affecting many customers and we are working on it,” Cleaver said.On March 16, K Servicing informed Cleaver that her loan was rejected. She said the company didn’t provide an explanation and told her there was was no way to appeal.A week later, after Cleaver had turned elsewhere for her money, the email landed from K Servicing telling her to reapply through SmartBiz.”They are constantly changing what they say about how to pursue the PPP process,” Cleaver said. “And yet cannot execute their way out of a wet paper bag.”Update: This story was updated to include comments from K Servicing and SmartBiz received by CNBC after initial publication.WATCH: Biden administration changes who qualifies for Paycheck Protection Program loans More

Win McNamee | Getty Images News | Getty ImagesTaxes on retirement savings are inevitable — it’s really a question of now or later.President Joe Biden’s tax plan may make it better to pay Uncle Sam now.Taxpayers can do that by saving in a Roth account or converting a traditional, pre-tax account to a Roth account. They’d pay taxes on the savings up front instead of in retirement.More from The New Road to Retirement:Required minimum distributions are back — and differentHow marginal and effective tax rates differHow Social Security’s services have changed during the pandemic”Roths have all of a sudden become a better flavor than they were before,” said Leon LaBrecque, an accountant and certified financial planner at Sequoia Financial Group, based in Troy, Michigan.”We’re on a full-board tilt trying to get everyone converting [to a Roth account] that we can,” he said of clients.Biden tax planGenerally, Roth accounts make sense if taxpayers think their income-tax rate will be higher when they withdraw money in retirement.In that case, it would yield a financial benefit to pay the tax now at a lower rate.Biden’s tax plan may make Roth accounts more attractive, especially for wealthy households.The Biden administration has signaled its intent to raise taxes for people whose income exceeds $400,000 a year to help finance its legislative agenda.The White House hasn’t officially proposed increases on the individual-tax ledger. The administration recently proposed a corporate-tax hike to fund an infrastructure measure.But Biden is expected to propose raising the top income-tax rate to 39.6% from the current 37%. That would restore the top rate to its level before the 2017 Tax Cuts and Jobs Act.”I think we kind of almost know, or by end of the year we’ll know, the [top] rate will jump from 37% to 39.6%,” said Robert Keebler, a certified public accountant based in Green Bay, Wisconsin.Estate taxThe White House will also likely call for a lower estate-tax exemption, subjecting more wealthy estates to tax at death.A 40% federal estate tax currently applies to estate values that exceed $11.7 million (or $23.4 million for a married couple).Biden has proposed lowering that threshold to $3.5 million in bequests at death. Sen. Bernie Sanders, I-Vt., proposed taxing estates valued over $3.5 million at 45%, rising to 65% for those over $1 billion.That’s significant in the context of retirement savings. A Roth conversion shrinks the size of an estate by the amount of income tax paid on that conversion.Wealthy individuals can therefore use a Roth account to reduce the size of their taxable estate and potentially avoid federal estate tax, LaBrecque said. A similar concept applies in states that levy an estate tax.Not just the richBut Roth accounts may not just benefit the super-rich.As a presidential candidate, Biden proposed changing the tax treatment of savings in traditional, pre-tax 401(k)s, individual retirement accounts and other retirement accounts.Savers currently get a tax deduction that rises for those in higher brackets. For example, someone in the 12% bracket would deduct $12 from their taxable income for every $100 of savings; someone in the 37% tax bracket would get a $37 benefit.Biden’s plan would instead create a tax credit for retirement contributions that translates to a 20.5% deduction for all taxpayers, regardless of income, according to the Tax Foundation.If [larger conversions] make sense at 37%, they’ll make more sense at 39.6%.Robert Keeblercertified public accountantThat structure would benefit lower earners. (A taxpayer in the 12% tax bracket would get a 20.5% deduction, for example.)The highest earners would get the equivalent of a 20.5% tax deduction now on their pre-tax savings, but would pay tax at a higher, 37% rate later.That dynamic means earners in the 22% tax bracket or higher would likely be affected. That would encompass single taxpayers with about $40,500 or more of annual income and married couples who make over $81,000.That reduced tax break may make Roth accounts more attractive instead, Keebler said.CaveatsHowever, a pre-tax 401(k) may be helpful within the context of other proposals, like one to raise the Social Security tax for those earning more than $400,000.Someone over that threshold may be able to avoid the payroll-tax hike by using savings in a pre-tax 401(k) to reduce taxable income below $400,000.Beyond Biden’s tax plan, Roth accounts may be beneficial for other reasons.They don’t come with required minimum distributions, for example. New rules also mean people who inherit retirement accounts must withdraw assets within 10 years. Inheritors of traditional accounts would need to pay tax on those withdrawals.There are caveats for those who wish to convert a traditional account to a Roth. For one, they need the cash on hand to pay the associated tax on the conversion.It may also make sense for those doing conversions of modest amounts to wait until the end of 2021, when there’s a little more clarity around changes to tax law, Keebler said. At this point, these are just proposals and may not become law.Larger conversions may be best accomplished by doing it piecemeal over the year — perhaps split between April, July, October and year-end, Keebler said.”For larger conversions, if they make sense at 37%, they’ll make more sense at 39.6%,” he said.Taxpayers should also be aware that a Roth conversion will raise their taxable income and could potentially push them into a higher tax bracket.There are also income limits on Roth IRA contributions. Taxpayers are barred from making any contributions if their modified adjusted gross income exceeds $140,000 this year. (It’s $208,000 for married joint tax filers.)Income limits don’t apply to a Roth conversion or 401(k). More

Dell CEO Michael Dell delivers a keynote address during the 2013 Oracle Open World conference on September 25, 2013 in San Francisco, California.Justin Sullivan | Getty ImagesCheck out the companies making headlines in midday trading.Carnival, Norwegian Cruise Line, Royal Caribbean — Shares of the major U.S. cruise lines jumped on Wednesday amid optimism about a swift economic recovery from the pandemic. Shares of Carnival gained 1.4%. Norwegian Cruise Line and Royal Caribbean gained 0.7% and 0.4%, respectively.AMC Entertainment —Shares of the movie theater stock dropped 3.4% after Loop reiterated its sell rating on AMC Entertainment. The Wall Street firm said “AMC’s competitive position…has not improved, its enterprise value has almost doubled while its closest competitor’s value has declined.”Dell – Shares of the computer company advanced 2.3% after Deutsche Bank called the stock a top recovery idea. “We believe its shares will continue to outperform as IT spending recovers as we go through this calendar year,” the firm wrote in a note to clients. Shares of Dell are up 25% for the year. Li Auto — Shares of the China-based electric vehicle maker dropped 12.9% after the company announced a new $750 million debt offering to fund research and development. The stock has fallen 20% this year.Genworth Financial – Shares of the insurance company slid 3.7% after Genworth terminated its deal to be acquired by China Oceanwide Holdings. “Genworth’s Board of Directors has concluded that Oceanwide will be unable to close the proposed transaction within a reasonable time frame and that greater clarity about Genworth’s future is needed now in order for the Company to execute its plans to maximize shareholder value,” the company said in a statement. The merger was first proposed in 2016.Qiagen — The biotech stock rose 1.6% after Qiagen announced a new product to help sequence the genomes of the Covid-19 virus more quickly. Sequencing the genomes can help scientists detect new variants of the virus. The Netherlands-based company said its new testing kit could analyze more than 6,000 samples at the same time.Ebang International Holdings — Shares of the Chinese blockchain company fell 2.2% on Wednesday even as Ebang pushed back against a short-seller report from Hindenburg Research. The company said the report, released on Tuesday, contained “many errors, unsupported speculations and inaccurate interpretations of events.”Niu Technologies – Shares of Niu dipped 4.4% despite unveiling its first electric kick-scooter. The China-based company planning to make the two-wheeled transportation device available in North America, China and Europe this summer.— with reporting from CNBC’s Yun Li, Pippa Stevens and Jesse Pound. More