Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
That’s All Folks? – The PPP Money Is Already Gone
April 15, 2020
Update 4/16/20: The SBA has put up an official statement on its website that says “The SBA is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding. Similarly, we are unable to enroll new PPP lenders at this time.”
A number of fintech companies have just joined the Paycheck Protection Program, but they’re a tad late to the PPParty. On Twitter, Senator Marco Rubio, one of the co-sponsors of the CARES ACT that developed this program, confirmed the rumors that the well had run dry. “Sadly it appears #PPP will grind to a halt tonight as the limit on $ allocated to guarantee #PPPloans about to be hit.”
Sadly it appears #PPP will grind to a halt tonight as the limit on $ allocated to guarantee #PPPloans about to be hit.
Now 700000 small business applications are in limbo & no new loans will be made until the game of chicken in Congress ends & additional $ approved.
Inexcusable
— Marco Rubio (@marcorubio) April 15, 2020
Here’s the math
Congress approved $349 billion to guarantee #PPP
At 2pm today had over $300 billion in approved #PPPloans
Need $10 billion to cover fees & processing
When we reach $339 billion limit PPP will stop until they end with the ridiculous games & approve more funds
— Marco Rubio (@marcorubio) April 15, 2020
The SBA has often made reference to total funds “approved” when calculating its numbers rather than loaned out, so if you’re a business that has already been approved, then presumably funds have already been allocated for your business and you will still receive them. But if your application is pending, well it’s possible that funding may require additional congressional authorization. That however, as noted by Rubio’s remarks, will require some political compromise.
Update: 4/16 8 AM: Senator Rubio said on Fox Business that the PPP program was now frozen after having reached its limit and has stopped.
We’ll update this as more information becomes available.
Should I Apply to Become a PPP Lender?
April 10, 2020
One question being posed in the small business finance community is whether or not you should apply to become a PPP lender. Unless you are a very large well-capitalized company with a deep legal and compliance bench, you probably shouldn’t.
Here’s why:
- You must supply the capital. While a federal mechanism is being put in place to offload the PPP loans you fund, you need the balance sheet to fund the loans in the first place. Also, consider that community banks have historically expressed frustration with the guaranty process and that’s when times and loan volumes were operating at normal levels. You must be prepared for hiccups to take place that delay or even possibly prevent offloading of some or all of these loans.
- You only earn a 5% processing fee on loans under $350,000. For larger loans, it’s a smaller percentage. You can’t even charge the applicant any fees at all so your compensation is entirely dependent on the SBA to pay you. Consider that your underwriting costs may offset some or all of that fee, leaving very little room for profit.
- You must have 2019 audited financial statements available for inspection by the SBA.
And you must have either of the following:
1.
- You must already have been applying Bank Secrecy Act-level compliance prior to this crisis.
- You must have been originating at least $50 million in business loans or other commercial financial receivables per year for each of the last 3 years consistently.
OR
2.
- You must already be a service provider to a bank.
- You must already have a contract to support the bank’s lending activities.
It’s a tough bar to meet for a small and mid-sized small business financing provider, but the program isn’t really set up to become a major profit center for lending companies, it’s supposed to be a support center for SMBs to keep workers employed. Initially, many banks were hesitant to get involved because PPP participation was going to generate LOSSES for them. It still might.
So what’s the incentive to be a non-bank PPP lender? It’s a moral pursuit on the front-end rather than a financially-driven one. On the back-end, it’s a tool for lead generation, public relations, and elevating goodwill value. If such lenders are able to execute successfully, it could further develop trust for fintech with legislators, regulators, and the general public. On the other hand, however, if they perform poorly, it could reflect negatively on fintech as a whole.
So if you find yourself on the PPP lending bench, you’re not missing out financially. You can still become an agent/broker should an approved SBA lender accept you. Such a role presents limited upside financial potential, so if it’s riches you seek, the PPP doesn’t provide them.
Lastly, becoming a PPP lender certainly won’t save a dying lending company. Making loans at 1% interest to distressed and closed businesses isn’t going to somehow save a company with an already damaged loan portfolio. It’s just going to put it out of business faster.
Should you apply to become a PPP lender? That’s up to you. Good luck!
Sorry, You’re Not Eligible For PPP Money
April 8, 2020
The rush to submit your PPP application may be for naught if you own an ineligible business. The SBA prohibits loan guarantees to “businesses primarily engaged in lending, investments, or to an otherwise eligible business engaged in financing or factoring.” If there’s any confusion as to what that includes, the SBA lists 7 specific ineligible business types under this definition in the statutory code. They include:
- Banks
- Life Insurance Companies (but not independent agents);
- Finance Companies
- Factoring Companies
- Investment Companies
- Bail Bond Companies
- Other businesses whose stock in trade is money
The PPP’s interim final rule refers to this statute as a rule for ineligibility as it applies to the PPP.
The statute does list a handful of businesses engaged in lending that may traditionally qualify for an exception. They are as follows:
- A pawn shop that provides financing is eligible if more than 50% of its revenue for the previous year was from the sale of merchandise rather than from interest on loans.
- A business that provides financing in the regular course of its business (such as a business that finances credit sales) is eligible, provided less than 50% of its revenue is from financing its sales.
- A mortgage servicing company that disburses loans and sells them within 14 calendar days of loan closing is eligible. Mortgage companies primarily engaged in the business of servicing loans are eligible. Mortgage companies that make loans and hold them in their portfolio are not eligible.
- A check cashing business is eligible if it receives more than 50% of its revenue from the service of cashing checks.
- A business engaged in providing the services of a financial advisor on a fee basis is eligible provided they do not use loan proceeds to invest in their own
deBanked is not a law firm. Consult a CPA or an attorney to provide better guidance on your company’s eligibility.
Sen. Rubio: PPP Application For Fintech Lenders Expected This Week
April 6, 2020Update: 4/8/20 The PPP Application for Fintech Lenders is Here
Senator Marco Rubio tweeted on Saturday that he expects the US Treasury Department to release a separate PPP application for non-bank lenders early this week. The Treasury and SBA have previously issued guidance on the minimum criteria a fintech lender would have to meet to be eligible, leading to confusion when the official application released a day later omitted any mention of fintech lending.
The rollout has not been perfect. One challenge facing fintech lenders is the supply of capital as the loans must be issued from their own balance sheet and held on their books for at least 7 weeks until they can be purchased by the federal government. Rubio said that we will need a defined purchase mechanism for such a transfer to take place to assist not only fintech lenders but also community banks.
The good news is multiple FinTechs including @PayPal & other online lenders are ready,able & willing to process #PPPloans for them & anyone else.But they need @USTreasury to release application for nonbank lenders to become certified.
I expect that very early next week. 5/13
— Marco Rubio (@marcorubio) April 4, 2020
StreetShares Posts Another Loss
April 2, 2020Sales and Marketing Expenses declined dramatically for StreetShares for the six-month period ending December 31, 2019, according to the company’s latest SEC filing, but the company’s payroll expense still wildly exceeded revenue, putting them yet again into deep net loss territory.
StreetShares recorded total operating revenues of $2.43M, payroll expenses of $3.49M, and a net loss of $5.18M for the period.
The company’s accumulating losses over time has translated into a stockholder deficit of $35.2M. This reporting period is pre-COVID-19 but the company disclosed that future financial results may be adversely affected by the virus.
The company also borrowed $3M in the form of a convertible promissory note issued to an investor.
Only 16.81% of loans on the StreetShares platform were funded by institutional investors for the period. Retail investors, the largest segment by far, funded 70.63%.
How to Become a PPP Approved Lender With the SBA
March 31, 2020Update 4/8/20: The PPP Lender Application for Non-banks/fintech Companies is HERE
Update 4/3/20: The PPP Lender Application for Banks is HERE
The Treasury Department has set an April 3rd expected start time for lenders to begin accepting Payroll Protection Program loan applications. But who exactly can make the loans? Are fintech lenders in or out?
According to the Treasury, the following are already approved:
- All existing SBA-certified lenders
- All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions
BUT! A broad set of additional lenders can begin making loans as soon as they are approved and enrolled in the program. This “broad set,” that presumably includes fintech lenders, can apply by emailing an application to DelegatedAuthority@sba.gov.
While the loans are 100% backed by the full faith and credit of the United States. Lenders will be compensated in accordance with the following structure, a percentage of the financing outstanding balance at the time of final disbursement:
- Loans $350,000 and under: 5.00%
- Loans greater than $350,000 to $2 million: 3.00%
- Loans greater than $2 million: 1.00%
Lenders may not collect any fees from the applicant.
Who can be an agent/broker?
- An attorney;
- An accountant;
- A consultant;
- Someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant;
- Someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans;
- A loan broker; or
- Any other individual or entity representing an applicant by conducting business with the SBA
Agent fees will be paid out of lender fees. The lender will pay the agent. Agents may not collect any fees from the applicant. The fee structure is below:
- Loans $350,000 and under: 1.00%
- Loans greater than $350,000 to $2 million: 0.50%
- Loans greater than $2 million: 0.25%
For more info, check here: https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
Will Online Lenders Be Approved to Make PPP Loans?
March 31, 2020
Lend Academy, the publishing arm of LenditFintech, ran the headline yesterday that said “Fintechs Authorized to Make Small Business Loans as Part of Government Stimulus.” The statement seems to stem from a quote by Treasury Secretary Steve Mnuchin in which he said that “Any FDIC bank, any credit union, any fintech lender will be authorized to make these loans to a small business subject to certain approvals.”
That proclamation is not quite definitive, but online lenders like Kabbage are optimistic that such an arrangement will come to fruition. Kabbage CEO Rob Frohwein said on LinkedIn that he believes his company will be approved to make Payroll Protection Program (PPP) loans on behalf of the SBA, though he further explained that they are also partnering with banks so that they’ll be able to help small businesses in this regard either way.
Time is running out as retailers begin furloughing or laying off employees that the stimulus was designed to keep.
“The PPP is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses,” the SBA’s website says. “If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.”
As the clock ticks and workers around the country lose their jobs, the pressure on the federal government to approve some limited number of online lenders to assist in the process potentially increases.
Nearly two dozen fintech companies are collectively lobbying to particpate in that effort including Kabbage, OnDeck, and Lendio.
Can The SBA Handle The Stimulus On Their Own?
March 27, 2020
As the market cheers the upcoming passage of a $2 Trillion stimulus bill that is intended to provide much needed support to small businesses, industry insiders are beginning to raise concerns about the SBA’s infrastructural ability to process applications in a timely manner.
In a webinar hosted by LendIt Fintech yesterday, Opportunity Fund CEO Luz Urrutia estimated that conservatively, it could take the SBA up to two months to even begin disbursing loans offered by the bill. Kabbage President Kathryn Petralia offered the most optimistic estimate of 10 days, while Lendio CEO Brock Blake thinks that perhaps it could take around 3 weeks.
Blake followed up the webinar by sharing a post on LinkedIn that said that small businesses were reporting that the SBA’s website was so slow, so riddled with crashes, that the SBA had to temporarily take their site offline.
Most skeptics raising alarms are not referring to the SBA’s staff as being unprepared, but rather the systems the SBA has in place.
A March 25th tweet by the SBA reported that the site was undergoing “scheduled” improvements and maintenance.
The website is currently undergoing continued scheduled improvements and maintenance. For more info on SBA #COVID19 resources, visit https://t.co/yG2N17KF63
— SBA (@SBAgov) March 25, 2020
This all while the demand for capital is surging. Blake reported in the webinar that loan applications had just recently increased by 5x at the same time that around 50% of non-bank lenders they work with have suspended lending.
Some informal surveying by deBanked of non-bank small business finance companies is finding that among many that still claim to be operating, origination volumes have dropped by more than 80% in recent weeks, mainly driven by stay-at-home and essential-business-only orders issued by state governments.
It’s a circular loop that puts further pressure on the SBA to come through, none of which is made easier by the manual application process they’re advising eager borrowers to take on. The SBA’s website asks that borrowers seeking Economic Injury Disaster Loan Assistance download an application to fill out by hand, upload that into their system and then await further instructions from an SBA officer about additional documentation they should physically mail in.
Perhaps there’s another way, according to letters sent to members of Congress by online lenders. 22 Fintech companies recently made the case that they are equipped to advance the capital provided for in the stimulus bill.
“We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers,” the letter states.
Members of the Small Business Finance Association made a similar appeal in a letter dated March 18th to SBA Administrator Jovita Carranza. “In this time of need, we want to leverage the experience and expertise we have with our companies to help provide efficient funding to those impacted in this tough economic climate. We want to serve as a resource to governments as they build up underwriting models to ensure emergency funding will be the most impactful.”
How fast things come together next will be key. The House is scheduled to vote on the Senate Bill today. If a plan to distribute the capital cannot be expedited and the crisis drags on, the consequences could be dire.
“Hundreds of thousands of businesses are going to be out of business,” Urrutia warned in the webinar.
