FinTechs agree to grant emergency loans to small businesses

They wanted to come in. Now they have entered.

Online lenders had pressured federal officials to participate in emergency lending to small businesses hit by the economic fallout from the novel coronavirus outbreak. Three fintech companies – PayPal, Intuit QuickBooks Capital and Square Capital – said in recent days the federal government approved them to grant loans under the $ 349 billion paycheck protection program.

Other leading fintechs, including Funding Circle, are awaiting approval to become direct lenders for the program. Applications were first received from fintechs last Wednesday, although banks and credit unions have been involved since the program launched on April 3.

Some online lenders, including Square, PayPal and Kabbage, have participated indirectly in collaboration with banking partners already active in the program. OnDeck Capital said Monday it would process the applications on behalf of Celtic Bank, an industrial bank in Utah, and that it also applied last week to become a direct lender for the program.

As of Monday afternoon, the Small Business Administration said it has approved more than 941,000 loan applications for the program, for a total of about $ 228 billion. Many banks have prioritized existing customers over non-customers, leaving small businesses without core banking relationships desperate for help.

According to several industry experts, fintechs are the most likely vehicles for loans to small businesses that have struggled to access the emergency loan program.

“Having another outlet has to help,” said Steven Busby, CEO of Greenwich Associates, a data analytics company in Stamford, Connecticut. “There are all these stories of companies that didn’t have a banking relationship, and they’re going to be someone who will listen” to get funding.

Viral Acharya, a former deputy governor of the Reserve Bank of India who teaches finance at New York University’s Stern School of Business, said the program approves loans from lenders on a first-come-first-first basis. served.

As a result, “there are likely to be deserving businesses that don’t get the money,” Acharya said. “Attempts must be made to expand the program; otherwise, you could get a very unfavorable foreclosure.

Fintechs can be “particularly useful” in this regard, Acharya said. “We need to keep the universe of eligible lenders very broad.”

John Pitts, head of policy at Plaid, a San Francisco-based data and technology company that serves hundreds of fintechs, said the median size of program loans granted to date is around $ 79,000, or significantly more than what small businesses typically need. fintech lenders.

Most fintech borrowers need $ 25,000 or less, and “banks don’t do those kinds of loans,” Pitts said. “In the fintech ecosystem, we are seeing unmet demand for loans. “

The paycheck protection program was included in the so-called third-round stimulus package passed by Congress and President Trump signed on March 31. It offers loans of up to $ 10 million to small businesses with 500 or fewer employees. Much of the money borrowed by businesses can be set aside if they spend it on payroll and basic operating expenses in the first few months after receiving funding.

The law allowed fintechs to participate, but the Treasury Department and the SBA – which manage the program – created a separate approval process for non-depository lenders.

PayPal has declined to discuss the response it has received since it started lending on Friday, but said all borrowers eligible for the program can apply through PayPal, spokesperson Joseph Gallo said on Monday.

“We believe there is a need to help the smallest of small businesses in this unprecedented time,” said Gallo.

Jackie Reses, director of Square Capital, said he tries to prevent borrowers from having long waits for approvals by sending out invitations to merchant clients who he believes could get approvals quick and easy. All Square Capital loans are made to merchants who use the Square payment platform.

“Our goal is… to take the most automated first so that we can get them through and get approved and hopefully disbursed,” Reses said after tweeting Monday that Square Capital had been named the direct lender of the program. “We only send applications because we could get them quickly to the SBA.”

This should help many very small businesses, especially those owned by women and minorities, to avoid “Catch-22 where they have to have a pre-existing lending relationship with a bank”.

Intuit QuickBooks Capital, which joined the program as a direct lender on Friday, did not provide an interview setting before the deadline for this story.

Funding Circle submitted its request to the federal government on Wednesday, “just hours after the release of the request form,” Ryan Metcalf, its chief public policy officer, said on Monday.

“We are ready to start lending as soon as we are approved. We are also ready to support borrowers in multiple languages, ”said Metcalf.

The SBA did a good job approving fintech lenders as quickly as it did, given that they didn’t participate in 7 (a) loans before the coronavirus crisis, Plaid’s Pitts said. He estimated that more than 20 fintech lenders would likely apply to participate in the program.

Still, the week-long lead that banks and credit unions have received means that much of the program’s initial $ 349 billion funding authorization has already been allocated. In light of this, Pitts and other industry watchers are hopeful that Congress and the Trump administration can come to a deal that allows for an additional injection of money into the program.

“The demand is clear,” Pitts said. “It won’t be fully covered by the first $ 349 billion.”

Likewise, Jack Heath, chairman and CEO of $ 7.2 billion WTB Financial assets in Spokane, Wash., The parent company of Washington Trust Bank, said additional funding was “essential.” .

“We really need to get more funds,” Heath said on Monday. “We don’t want the program to run out.

Heath added that he had no objection to fintech lenders joining the program.

“I see no reason not to insist that the money be in the hands of more people,” Heath said.

Trump administration asked for $ 250 billion in additional funding for paycheck protection program, but negotiations on broader stimulus measures are in the early stages in Congress.

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