Meet Bags, the Startup Unlocking Access to Capital for Small Businesses

If you were to bake a business cake, a key ingredient to make it rise, would be capital. And yet, adequate funding to scale operations remains a significant challenge for the 34 million small businesses in the US.1

Meet Bags, a startup founded by Daniel Taylor, Ignacio Semerene, and William Hayden, that launched in 2020, with a mission to bridge the capital divide by facilitating low-interest small business loans, particularly for minority-and women owned businesses.

Bags has raised $5 million to date, from investment firms Slauson & Co, Zeal Capital Partners, Google For StartUps, Connecticut Innovations, Schultz Family Foundation, Heirloom Ventures, Limited Ventures, Altrinsic Global Advisors and angel investor Richard Odior, and has used that seed funding to build out an AI-powered financial management platform and marketplace, connecting businesses to a vetted network of over 60 lenders.

Bags supports many different types of businesses, across CPG, services, retail and logistics – many of whom may not be retail bank worthy, but have anywhere from $100,000 to $30 million in revenue.

In a recently published Impact Report, Bags shared that working with a pilot cohort of 240 small businesses in 2024, they were able to see tremendous growth metrics: customers’ loan approval rates increased 4.5x, with a 5x faster funding timeline, facilitating enhanced business growth – 250% year-over-year, on average.

I spoke with CEO and co-founder Daniel Taylor, about the challenging small business funding landscape and how the Bags platform takes a holistic approach to financial growth.

A Closer Look At The Funding Problem

Most small businesses don’t have the cash flow and/or operating history to qualify for debt from traditional lenders or the SBA, and angel investment and venture capital is a difficult funding path reserved mostly for high-growth, tech companies. Thus, a majority rely on their personal savings and credit cards for capital to fund their business (2023 MetLife and US Chamber Small Business Index).

Taylor confirmed that, “what we’re finding is most businesses are starting on credit cards…which creates a bit of a negative cycle because you start a business on a credit card and if you start to generate some cash flow…now your personal credit score is down, which makes it harder to get a loan.”

He also explained that the rising trend of leveraging merchant cash advances (MCAs) through payment processing platforms like Shopify, PayPal, Square and Stripe can be harmful for business growth. These platforms will qualify businesses for a loan quickly, and repayments are based on a percentage of daily sales – usually 10 – 20%, with higher rates reserved for riskier businesses. Unfortunately, these daily sweeps can cut into profit margins, making it dangerous for businesses who experience a drop in sales volume or an increase in cost of goods sold, or COGS (and thus lower margins).

Some businesses owners are forced to take out additional MCAs, just to cover the shortfall from the initial MCA. There’s an interesting Reddit forum dedicated to this entire topic: “The Downfall of My Business: Why I Regret Taking MCA Loans.” Taylor explained, “What kills a lot of businesses who are really good businesses is when they take out one MCA and a second and a third, and the next thing they know, 35% of their monthly revenues are being used to repay that MCA.”

In addition, MCA providers file a UCC on assets of the business, which securitizes the loan by giving them a priority lien on the business assets. This is essentially a scarlet letter for other traditional lenders who often refuse to fund businesses with MCAs.

And thus, ironically, the most frequented pathways to capital for many small businesses in the early days often preclude them from accessing affordable loans as they grow and mature.

An Overview Of The Bags Platform

Bags is a SaaS subscription-based platform that works closely with businesses on the financial management and book-keeping side, to help them better manage cash flow such that they can more easily qualify for loans with the lenders on their platform. As part of their financial dashboard, the company also offers AI-powered CFO-level insights and monthly reports to help owners assess business performance, as compared to historical financials and industry benchmarks.

On the lending side, they offer a range of loan products in amounts ranging from $10,000 to $30 million, by working with carefully vetted partners, including private credit, community development financial institutions, or CDFIs, community banks and fintechs. CDFIs are mission-driven lenders, often federally funded, that target underserved communities and businesses that may not qualify for traditional financing, and can provide low-interest term loans, ranging from 4 – 6% APR.

Beyond the interest rates, Taylor explained that “we look at the loan documentation, we look at their typical terms, including covenants, we look at what it takes to be approved and then we decide, is this a product that is on par or better than a product that we currently have.”

Taylor emphasized that “there are a lot of predatory products that are out there” and believes Bags has a critical role to play in helping to protect small businesses from those types of products.

Bags offers subscriptions, starting at $280 / month with increasing tiers based on the size of business and level of financial management required.

To learn more, visit www.securebags.com.

FN1: The Small Business Administration (SBA) generally defines a small business by firm revenue (ranging from $1 million to $40 million), and/or by employment (from 100 to over 1,500 employees), with the criteria dependent on the specific industry. 

FN2:  Bags was founded with a mission of supporting women and minority-owned businesses, and serves business owners of all demographics and diverse backgrounds.