Federal Stimulus Package Gets off to a Rocky Start as SMB’s Seek Capital Quickly

Small businesses are becoming more anxious by the day with the crisis showing no signs of ending in the near term. The Federal government stepped into action and passed a $2tn stimulus package, including $350 billion to help small businesses in a program called the Paycheck Protection Program (PPP). We hosted a virtual panel on Friday with some of the key players in fintech as it relates to the bill.

Speakers included Brian Korn of Manatt, Stephen Denis of the Small Business Finance Association and Nat Hoopes of the Marketplace Lending Association. LendIt’s Peter Renton helped to guide the conversation which centered around the PPP and how fintech lenders can help deploy the capital.

As of this writing most banks have not even started to take applications and the approval process for fintech lenders is anything but clear. The economics of the deal and the fact that lenders need to deploy their own capital are two of the main reasons fintechs have yet to apply for approval in droves.

According to Nat Hoopes the lack of secondary market interest in acquiring the loans is also a difficult hurdle for fintechs. Borrowers do not have to make payments on loans for six months and if the proceeds are used for payroll the loan can be forgiven.

Brian Korn brought up that many fintech lenders rely on bank partnerships for AML and KYC processes which could make getting approved for the program complicated. New guidance could come out if the program continues to have issues. Banks might get their act together and fintech lenders could have to wait until the next phase of government stimulus.

Banks will begin lending to existing clients first to ensure they know who the small business is as there is a big worry about fraud with the program. Stephen Denis has also been focusing his time on educating members on the disaster loan from the SBA which has received almost three million applications as of Friday. The process for that loan has thus far been a lot smoother with the program already being in place.

Fintech lenders are also facing headwinds themselves as half have already stopped originating loans with capital drying up from investors. The affiliation rule related to ownership excludes most venture backed companies from receiving funding from the CARES Act. Not only are fintech lenders dealing with investor capital drying up but they are unable to receive capital from the stimulus to pay workers.

The virtual panel featured close to 50 questions from the audience who were engaged from the outset to better understand if their companies qualify and how fintech lenders can expedite the flow of capital.

If you’re interested in listening to the entire panel you can access the recording here.

More from LendIt Fintech

Our next virtual panel is called COVID-19 Planning for Fintech: 5 Ways to Maximize Efficiency with At-Home Agents on Thursday April 9th. As the effects of COVID-19 become more widespread and impactful, many fintech leaders are having some, or all of their contact center agents, work from home. Join Jennifer Kuechler of Strategic Link Consulting, Stephen Picciotto of ARB Call Facilities, and Jason Swift of Marlette Funding with moderator Jim Lynch of LiveVox.

  • Todd Anderson

    Todd is the host of PitchIt: the fintech startups podcast, a weekly interview show featuring emerging fintech founders and leading venture capitalists. He is responsible for leading the content team which covers fintech through daily & weekly email newsletters, editorial, virtual events, and in-person conferences. He has been covering fintech, banking, and venture capital for more than 15 years, including speaking regularly at industry events.