With the U.S. economy on shaky ground due to closures and lockdowns implemented to stop the spread of COVID-19, many small businesses have been hit the hardest during this trying time.
In fact, a new study by economists at the University of Illinois, Harvard Business School, Harvard University and the University of Chicago has projected that more than 100,000 small businesses have permanently closed since the pandemic was declared in March.
While the U.S. government stepped in to offer help through Paycheck Protection Program loans through the Small Business Administration (SBA), a recent report from the SBA’s inspector general found that minority-owned businesses may not have received loans as intended under PPP, and that there was no evidence that the SBA had told lenders to prioritize these business owners, which was a requirement under the CARES Act.
With that in mind, Robert F. Smith — the head of Vista Equity Partners and the wealthiest African American in the United States — believes that the next round of stimulus funds needs to specifically focus on helping out minority-owned small businesses, and that FinTechs should help with the process.
“We need to continue to rally as Americans to come with real, lasting, scalable solutions to enable the communities that are getting hit first, hardest, and probably will take the longest to recover with solutions that will help these communities thrive again,” Smith said in an interview on Meet the Press.
He cited the fact that small communities in both urban and rural areas — many that were only now recovering from the 2008 financial crisis — are not always banked by large financial institutions. Instead, they are forced to work with community development financial institutions that are not always approved lenders under the SBA and therefore cannot distribute PPP money.
And while the average size of the initial PPP loans was just under $240,000, Smith would like to see the average loan size go down to $25,000 and $15,000, adding that FinTechs would be able to provide solutions to fast-track a lender’s ability to assess a client’s creditworthiness, as well as figure out how to allocate capital and make loans.
Smith has even ordered his own portfolio companies to come up with solutions, including asking Finastra to develop technology that could help small lenders process PPP loans for small businesses in underserved communities. As of last week, 800 lenders had processed 75,000 loans using the software that Finastra developed for U.S. small lenders.