You can access the original article on Barron’s here: https://www.barrons.com/articles/fintechs-gear-up-to-get-coronavirus-aid-to-more-small-businesses-51587987001
Fintechs Gear Up to Get Coronavirus Aid to More Small Businesses
27 April 2020 11:30 GMT
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Kevin Plein, co-founder of A-Game Sports in New Rochelle, N.Y., completed the online paperwork for a Paycheck Protection Program loan on April 6 through a large bank where he is a customer. He has yet to hear if the loan, which is for less than $50,000, has been approved.
A-Game, an indoor sports facility that provides instruction to young athletes, employs seven full-time and 50 part-time workers. It is coming up on its fifth year in business. There may not be a sixth if federal aid doesn’t arrive soon to combat the coronavirus crisis. “I just know [the loan] is in the queue,” Plein said. “We need this loan or we could tank.”
Plein’s problems highlight perhaps the biggest problem with traditional banks: They tend to favor their biggest clients and aren’t well-suited to reaching underserved communities such as minorities, people in rural areas, or the smallest of small businesses.
Paycheck Protection Program
To help remedy this, the Small Business Administration earlier this month approved several fintechs to provide loans through the PPP including PayPal, Square, Intuit, Kabbage, OnDeck, and Funding Circle. Though none of them are depository institutions, or banks, their technology should help them reach underserved cohorts better.
Now, with round two of the paycheck protection program set to launch Monday at 10:30 a.m. Eastern time, fintechs are gearing up to help dole out more than $300 billion in loans to struggling companies. While the fintechs are ready, there is still one holdup: They need access to the Paycheck Protection Program Liquidity Facility, a Federal Reserve program that allows them to use their PPP loans as collateral. Right now, only banks can use their PPP loans as collateral to borrow from the Fed. The Fed on April 23 said it was working to expand the program to SBA-qualified lenders “as soon as possible.” As a plan B, many of the fintechs are working with banks.
The PPP is considered a success for the most part. During the first round of the PPP, the SBA processed 14 years of loans, valued at $342.28 billion, in 14 days. But there were problems, most glaringly when public companies, many of them large restaurant chains, received millions in PPP loans while smaller restaurants and businesses were shut out. A number of big restaurant chains, including Ruth’s Hospitality Group and Shake Shack, are returning millions of dollars in loans after a backlash. The Treasury on Friday put out additional guidance that seeks to further restrict PPP loans to small businesses.
Many of the banks involved in the PPP processed their existing customers and prioritized their largest clients, said Ryan Metcalf, head of U.S. regulatory affairs at Funding Circle, a peer-to-peer lender. “The smallest of the small didn’t get access to the funds before they were depleted,” he said.
Funding Circle was given the go-ahead as a PPP lender on April 15, a day before the SBA ran out of funds. “We are working around the clock to process applications to submit to the SBA as soon as the program reopens,” Metcalf said.
OnDeck says it is better suited than big banks to quickly reach the businesses most in need. The fintech can process an application within minutes and get funds to a small business much faster than a traditional bank, spokesman Jim Larkin said. Its average loan size is $50,000 to $60,000, which is more in line with mom-and-pop businesses, he added.
PayPal received the go head on April 10 to originate loans in the PPP program. It is working with WebBank. PayPal was able to approve and provide funds for loan applicants before the PPP funding was exhausted, a spokesman said.
For his part, Plein is still waiting but he is hopeful that his loan will go through. “We do not know what the future holds,” he told Barron’s. “Running a business like this in a socially distant environment is difficult. [The loan] will give us a lifeline to survive in the post-Covid-19 world that we are entering.”
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