SMBs Turning To FinTechs For PPP Funds As Big Banks Focus On Clients

Many small businesses that were relying on the Paycheck Protection Program (PPP) to survive through the COVID-19 pandemic found themselves shut out of the first round of funding.

In less than two weeks, $349 billion was claimed by around 1.6 million small business owners, which is only about 6 percent of America’s small businesses — leaving 94 percent of SMBs, many with applications pending, still waiting for help.

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Although Treasury Secretary Steven Mnuchin had announced last month that “any FinTech lender will be authorized to make these loans,” the SBA only approved several of these firms last week on Tuesday evening. Traditional banks had at least a week’s head start on lending. By last Thursday morning, the PPP funding had run out, leaving many SMBs that were trying to secure loans via FinTechs with nothing.

UK-based Funding Circle, for example, had pre-processed several billions of dollars in loan applications from thousands of small businesses, but it received SBA approval too late.

“As soon as we received the approval, the funds ran out,” said Ryan Metcalf, head of U.S. regulatory affairs for Funding Circle. OnDeck Capital and BlueVine also received approval this past week, while PayPal, Intuit’s QuickBooks, and Square were approved a bit earlier. And at least five other FinTech lenders are still awaiting to get the green light from the SBA.

Even SMBs that went the traditional banking route ran into problems. Big banks participating in the program prioritized their own customers, while small shops and micro-businesses found themselves overlooked. As a result, these businesses turned to smaller financial institutions and FinTechs.

However, it wasn’t all bad news. More than 70,000 small businesses were able to secure relief funds via Lendio, for around $5.8 billion in total funding. The average loan size was just over $82,000—one third the national average. For the entire program, the average PPP loan size was just under $240,000.

“Much of the reason why I have been so vocal about the participation of fintech lenders is due to the fact that these lenders’ superpower is processing smaller loan amounts at a higher volume. Community banks, on the other hand, specialize in processing large amounts at a lower volume; this is not what Main Street needs right now,” Brock Blake, CEO of Lendio, wrote in a piece in Forbes.

And fortunately, the Senate recently passed a bill approving over $480 billion in additional coronavirus relief, which is expected to move through the House qiuckly. The new package includes $310 billion for the PPP, and there is hope that the SBA will approve all willing FinTechs in time for this round.