Business Lending

Fintech Lenders Did Better Job Meeting Intentions of the CARES Act, Study Finds

Fintech lenders doling out PPP not only reached smaller businesses on average but played an essential role in extending PPP loans to Black-and Hispanic-owned businesses, according to a study conducted by professors at the NYU Stern School of Business.

“Fintech lenders originated much smaller loans than other lenders, suggesting they served smaller firms on average,” researchers found. “Overall, we find that, relative to other lenders, [Minority Development Institutions] nonprofits, and fintech lenders make a substantially larger share of their loans to minority borrowers, particularly Black- and Hispanic-owned businesses.”

The team of economists looked over 3.4 million PPP transactions to determine what category of lenders had the highest minority share among their loans. Ryan Metcalf, Head of Public Policy for Funding Circle, member of the Innovative Lending Platform Association (ILPA), shared the full study on LinkedIn, pointing out that six ILPA members had contributed to saving jobs.

“(Funding Circle US, BlueVine, Kabbage, Inc, OnDeck, Fundbox, Lendio) provided more than 476,000 #PPP loans totaling $16.5 billion with an average loan size of ~$30,000, median loan size of $15,000, and helped save more than 2 million jobs,” Metcalf wrote. “And that was just in 2020.”

The study found that fintech lenders did a better job meeting the intention of the CARES act. While most lenders were giving out larger loans to large firms, fintech better reached actual small businesses with smaller loans on average.

“Section 1102 of the CARES Act explicitly specified that the program should prioritize ‘small business concerns owned and controlled by socially and economically disadvantaged individuals,'” they wrote. “However, the SBA did not issue specific guidance for distributing the loans, leaving private financial institutions administering the loans to independently determine which businesses to serve first or at all.”

Instead, as has become clear, many funds went to larger firms and seemed to miss minority communities. The team compared the mean and median loan amounts for different Lenders, finding the smallest in both types were fintech loans.

Researchers put first and last names through a mathematical model to predict race because that data was not available from the majority. Then predictions were compared to the sample borrowers that self-reported race. The algorithm was 78% accurate in guessing black names, 84% in guessing Hispanic, 95% for Asian, and 99% accurate for white names.

BlueVine’s CEO on Latest Round of PPP

BlueVine CEO Eyal Lifshitz took to twitter last night to update customers on the status of this PPP round. Word from around the industry has suggested that approvals have been slower and that in certain situations, additional documentation is being asked for because of the SBA’s heightened scrutiny.

Below is Lifshitz’s consolidated twitter thread.

As a third-generation entrepreneur, my decision to build BlueVine was personal—I believe in and have dedicated myself to small businesses. To the customers reaching out for Paycheck Protection Program support, know that I’ve read your messages and want to update you directly.

When the latest Paycheck Protection Program was announced, we knew we had to step up again and help small businesses. Though the cause was close to our mission, we had to refocus our business completely. If you feel this program has been slower, it has. But for good reasons.

Waiting is frustrating, especially if these funds will make or break your business. There are explanations for the longer wait times, which can actually mean GOOD news for your business. Let me break this down.

The SBA’s program changes were significant, adding Second Draws and other improvements. Every change requires an additional product build and support team training, ensuring we’re compliant and provide the most efficient and effective application process.

The program’s adjustments include serving the hardest-hit businesses (and not large well-known companies). This extra due-diligence means additional documentation and information for us to review. It also means that smaller businesses may have a greater share of the funds.

The previous PPP round was impacted by some fraudulent actors. To prevent funds from getting in the wrong hands, the SBA added more robust requirements. While this added protection is more work and slows things down, it ensures funding remains for those that need it most.

We know the process of reviewing and approving PPP loans was slow at first, but we wanted to ensure we got it right before automating. Since we started, our throughput has more than tripled. If you’re in review, be patient. We haven’t forgotten about you!

I want to emphasize that BlueVine, and me personally, are committed to serving small businesses. We’ve more than doubled our customer support team to better assist you during what I can only imagine has been a brutal year. We see you and are doing everything we can to help.