Enlisted late, online lenders still must wait to help speed up stimulus
When the federal government opened its $349 billion small-business lending program last Friday, startups that specialize in giving such loans were eager to accept applications and send money to the restaurants, gyms and hair salons hit hard by the coronavirus shutdown.
Yet these online lenders were locked out of the program for the first six days, even as small businesses complained about the difficulties in getting loans through traditional banks.
Treasury Secretary Steven Mnuchin had said on Fox News on March 29 that online lenders could be a part of what is known as the Paycheck Protection Program in order to give small businesses more, and potentially faster, options to get the loans.
But it was only on Wednesday night that the Treasury Department offered online lenders a way to apply to take part in the program. The startups said they had received no guidance on how long it would be before they could begin lending.
Financial technology companies like PayPal and Square, and startups that do only small-business lending, like Kabbage and OnDeck, have specialized in giving loans to the businesses that are the focus of the government program — those with fewer than 500 employees — and doing it more quickly than banks. Many of the lenders have expressed frustration that they have been shut out when they feel they could be the most useful.
“Every five minutes, I’ve been refreshing the Treasury page like a maniac,” said Sam Taussig, the head of global policy at Kabbage, one of the largest online lenders for small businesses. “The businesses that we serve on Main Street, they only have about 10 to 12 days of cash on hand, and we are well past that in many places.”
Online lenders are a small part of the financial industry. But last year, they were the biggest source of loans for small businesses with medium and low credit profiles, according to data released this week by the Federal Reserve.
Brock Blake, the chief executive of Lendio, a website that works with online lenders and traditional banks, said that where traditional banks generally took at least a week to approve loans, online lenders could almost always do it within an hour.
Online lenders are desperate to take part in the program because their business has largely dried up in the pandemic. The chief executive of Toast, which focuses on lending to restaurants, said in a letter this week that it was laying off or furloughing half of its employees. Kabbage made even larger cuts last month, according to Bloomberg.
Kabbage said it had already gotten 40,000 applications requesting $4 billion in loans.
While the startups can approve loans quickly, they have to process the applications with the Small Business Administration, and an SBA processing system has slowed down under the weight of the applications.