5 fintech war stories from the front lines of PPP lending
Fintechs in the payments industry saw problems coming when the CARES Act’s SBA Paycheck Protection Program opened the floodgates for millions of coronavirus-stricken small businesses to apply for loans via largely unprepared financial institutions.
When lender requirements were announced on March 30, fintechs raced to develop streamlined digital solutions as alternatives to time-consuming, manual loan-application steps.
Four days later, when the SBA’s E-Tran underwriting platform went live for the first round of $349 billion in PPP loans, payments technology firms played a key role in helping small businesses speedily verify details and documents.
But it became apparent that large banks with ready-made, streamlined loan application engines had an advantage. When the first round of funds ran out April 16, many big-bank applicants received multimillion-dollar loans while tens of thousands of others' applications were sidelined in the underwriting queue.
“The biggest banks have teams that could stand up a mobile app for PPP applications in a matter of days, but lots of smaller banks don’t have the most modern systems or that level of personnel, so they’re at an extreme disadvantage trying to stay competitive in processing these loans,” said Sam Maule, managing partner for North America at 11FS, which creates digital banking technology.
Only 38% of small businesses who applied were approved during the first phase of PPP loans, according to a survey Shift4 Payments conducted in the aftermath. Just over half of applicants, or 56%, actually received any funds in the first round.
The second phase of PPP loans that began April 27 is supposed to direct another $320 billion to SMBs, possibly expanding participation for more community banks. The role fintechs play could be critical for the neediest small businesses.
“Supposedly they’ve set aside $60 billion for PPP loans through community banks to reach smaller businesses, mom-and-pop operations that need $20,000 or $30,000 to keep going, and most of them will need technical help in the loan-application process,” 11FS's Maule said.
The challenge for smaller banks is to rapidly and accurately input the details and documentation needed for SMBs applying for loans, he said.
The following are lessons learned from the payments fintechs that rushed to help banks and small businesses speed up the PPP loan application process during the first phase: