Business Lending
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.
Views from the Small Business Finance Industry, March 27
March 27, 2020
As the coronavirus pandemic continues to disrupt the economy and affect small businesses as well as funders, deBanked will keep up with how various figures from the alternative finance sector are managing under the stresses of covid-19. Ranging from funders, to brokers, to those figures on the periphery of the industry, this series aims to highlight a variety of voices and we encourage you to reach out to deBanked to discuss how your business is doing.
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One such voice this week was Shawn Smith, CEO of Dedicated Commercial Recovery. Specializing in debt recovery and legal enforcement, Smith told deBanked that his business has already seen a jump in demand, but that he reckons, for now, most demand will be for modifications on existing deals. According to Smith, many of his clients have explained to him that merchants have been requesting changes to the terms of the financing, either by tweaking the rates or length of repayment.
“Just in two weeks we can see an uptick, but by and large, it hasn’t majorly spiked. I think it’s spiking with the funders or the creditors right now. And we’ll be next on that … a major thing I’m hearing is a dramatic increase in inbound calls to our clients for modifications.”
In Smith’s view, this back and forth between merchants and funders is a better scenario than the alternative, making clear that honest communication is necessary in a crisis like this.
“Hopefully everybody’s working together through this, which does seem to be the case right now. I honestly think we’re past the point of some people calling this a hoax, or it’s not to be taken seriously. And I’m seeing a lot of rallying around the idea of ‘we’re in this together even though we can’t stand next to each other.’ A kind of American spirit of we’re going to beat this, we’re going to get through it.”
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For Idea Financial, the idea of working together has manifested, just as it has for many companies across the world, digitally. CEO Justin Leto and President Larry Bassuk explained to deBanked that since their entire company is working remotely, the communication app Slack has stepped in for continual conversation between employees and Zoom is being used to check in with the team multiple times throughout the day.
“In many ways, our teams interact more now than they did when they were in the office together. We hold competitions, share personal stories, and really support one another. At Idea, the sentiment that we feel is that everyone appreciated each other more now than before, and we all look forward to seeing each other again in person soon.”
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On Thursday, industry leaders took part in a webinar hosted by LendIt Co-Founder and Chairman Peter Renton. Various subjects relating to Covid-19 were up for discussion by Lendio’s Brock Blake, Kabbage’s Kathryn Petralia, and Luz Urrutia of Opportunity Fund, with the $2 trillion government bill being foremost among them.
Blake, who had been in touch with Senators Romney and Rubio, explained that most small businesses will be eligible for a loan out of the $350 billion fund that would be allotted to the SBA under the $2 trillion bill, saying that “a tsunami of loan applications is coming because almost all small business owners in America will qualify for this product.” The Lendio CEO also noted that business can expect to pay an interest rate of 3.75% on these loans, only a portion of each individual loan may be forgivable, and the max amount loaned out will be two and a half times the business’s monthly payroll, rent, and utilities combined.
Beyond the specifics of the 7(a) loan program, Blake expressed concern over the SBA’s bandwidth, saying that he was unsure whether or not the organization and the banks that it will partner with to deliver these loans will have the capacity to process them, a point echoed by Urrutia. “We’re talking about businesses that are going to need a ton of support,” the Opportunity Fund CEO said. “With these programs, the money doesn’t really get down to the bottom of the pyramid.”
Collectively, the group hoped that the SBA would open up their channels and allow non-bank lenders to use some of the $350 billion to fund small businesses, citing that neither government agencies nor banks have the technology nor processes to hastily deal with the amount of applications that will come. In other words, the SBA is working with “dinosaur technology,” as Blake called it.
One point of concern that continually arose during the conversation was the situation lenders will find themselves in as the pandemic continues. With Blake saying that an estimated 50% of non-bank lenders on his platform have hit the pause button on new loans, each of the other participants expressed worry about lenders being wiped off the map during and in the aftermath of this crisis.
As well as this, Petralia explained that funders can expect to encounter increased rates of fraud during this time: “In times like this, the bad guys come out in force … criminals are very creative and smart, so I promise you they’ll come up with new ways to fraud the system.” Discussing how they are dealing with this, the group mentioned that they were incorporating additional revenue and cash balance checks, as well as social media checks to see whether the business announced that it had closed due to the coronavirus.
Altogether, the conversation was one of uncertainty, but also one of hope to keep the wheels of the industry turning as more and more small business owners look for financing to keep their payroll flowing. As Renton said closing the session, “This is our time to shine, this is fintech’s time to show what it’s been working on for the last decade.”
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.
$2 Trillion Senate Relief Bill to Pass Vote, Includes Small Business Funds
March 26, 2020
Senate leaders Mitch McConnell and Chuck Schumer have come to an agreement over a stimulus package that would inject $2 trillion into the US economy. With senators debating the bill at the time of writing, it is expected to pass. Said to be the largest and most robust rescue package in American history, the bill would see $300 billion go to the SBA for its 7A loan program.
“At last we have a deal,” McConnell said after negotiations wrapped up at 1:30am on Wednesday morning. McConnell later described the bill as “a war-time level of investment into our nation.”
According to Stephen Denis, Executive Director of the SBFA, who was closely engaged with the language being placed into the bill, certain small businesses who receive SBA loans may have their loan converted to a grant, depending upon how they aim to spend the financing. As well as this, Denis made clear that small businesses will be able to use these funds to pay any charges linked to an online small business loan or MCA.
“There’s different things that you can use the SBA money for,” Denis explained in a call. “Payroll support, obviously, including paid sick leave, medical, or family leave; costs related to health care; employees salaries; mortgage payments; rent payments; utilities. And then this is another thing that we got inserted into the bill, we wanted to make sure that businesses had the flexibility to use this funding to pay existing debt obligations that were incurred before the covered period. What this means is that if a business had taken out an MCA or a loan, that they could use this money to pay off the obligations.”
As well as allotting funds for the SBA, the bill provides for cash payments of up to $1,200 to be made available directly to individuals, $2,400 for married couples, and an additional $500 per child, which will be reduced if the individual makes more than $75,000 annually or if the couple makes over $150,000. $350 billion will also be made available to help small businesses mitigate layoffs and support payroll.
The most recent example of something akin to this bill is the Troubled Asset Relief Program (TARP) that was established to help financial institutions in the aftermath of the ’08 financial crisis. And with there being some surprise in retrospect to how TARP’s funds were ultimately used, there is concern about supervision of these funds.
When asked on Monday who would provide oversight for the program to fund businesses, President Trump replied with, “I’ll be the oversight.” However, since then White House officials have agreed in closed-door negotiations that an independent inspector general as well as an oversight committee will be instated to supervise the loans.
Despite stalling in the Senate several times throughout Wednesday, Denis is confident that the bill will be voted through the Senate, and following this, through the House.
“Never make a guarantee in Washington. That’s something I’ve learned in my career. But I think this is something that both sides, both Democrats and Republicans, recognize needs to get done right now. And I can’t imagine anymore political games after the agreement this morning.”
As well as this, Denis was eager to highlight that many funders and broker shops fall under the classification of a small business, and would be eligible for some of the funds promised by this $2 trillion bill; and that if you are wondering how you might access some of the relief package upon its passing through government, to reach out to him.
Knight Capital’s Intangibles As Reported Through Ready Capital’s Year-End Earnings
March 21, 2020Last year, Ready Capital Corporation (NYSE: RC) acquired small business funding provider Knight Capital.
RC’s year-end earnings provided some additional insight into the state of Knight Capital at the time it was acquired. This included balance sheet figures that recorded $48.4M in assets ($39.5M of which were purchased future receivables) and $31.8M in liabilities.
Among Knight’s intangible assets were a valuation of $880,000 assigned to the Knight Capital trade name, $1.2M assigned to the value of Knight’s broker network, and $3.8M assigned to the company’s internally developed software.
Goodwill of $11.2 million was recognized as the consideration paid exceeded the fair value of the net assets acquired.
View the full year-end financial statements by Ready Capital Corporation here
Square is About to Become a Real Bank
March 18, 2020
Square is on its way to becoming a bank. The payments and online lending company was approved by both the FDIC and the Utah banking regulator this week to create a de novo “industrial” bank. The company has been trying to accomplish this for more than two years. The news means that Square will likely no longer rely on a relationship with Celtic bank to make loans, while also being able to take on deposits.
The FDIC said in an announcement that, “The bank, Square Financial Services, Inc., will originate commercial loans to merchants that process card transactions through Square, Inc.’s payments system.”
Another fintech company, Nelnet, was also granted approval for an industrial loan charter at the same time.
Square and Nelnet’s move to become a bank is similar to the path taken by LendingClub. Rather than become chartered themselves, LendingClub recently agreed to acquire a chartered bank. However, LendingClub still must wait approximately 12 months for the deal to go through the process of regulatory approval.
How Small Business Funders Are Reacting to the Coronavirus
March 17, 2020
In the past week and a half it appears as if six months of panic, reaction, and preparation have taken place. With the coronavirus having transformed from a subconscious worry at the back of our minds to a global pandemic that is leading industries and nations to be reshaped, uncertainty and a lack of information may lead to further confusion and anxiety.
As such, deBanked reached out to a number of funders within the alternative finance space to gauge how they’re feeling on the pandemic and understand what measures they are taking at this time.
One such company was BFS Capital. With its headquarters in Florida, CEO Mark Ruddock explained that he and his employees are used to preparing for crises. “It’s prime hurricane land. So we have a capability to operate without a single human head in the office. We have 100% capability for all of our team to work remotely regardless of whether they have work laptops or not.”
Communication is at the heart of this ability, with offices in Toronto, Omaha, New York, Chelmsford in the UK, and outsource partners in Guatemala, BFS relies on software like Microsoft Teams and Zoom to ensure smooth contact is maintained between its employees across the world.
And this mindset has recently been further enforced with regards to company-customer relations, Ruddock explained, noting that in that wake of the coronavirus, BFS has amped up its outreach to existing customers.
“Instead of just waiting for active inbound communication from our merchants, we actually now have an active outbound calling program. We’re trying to reach out to many of our merchants and understand how their businesses are doing, understand what sort of support and help they’re looking for. We’re trying to draw from this not only information about the specific merchant, but also information about that merchant’s geography, sector, and so on. And all of that is being fed back into a real-time dashboard internally.”
Beyond BFS, merchant outreach was a trend amongst the companies deBanked talked to. With funders reporting that they have teams trained to discuss future funding options with businesses if their finances suffer from a decrease in customers.
At the same time, some funders have decided to focus their efforts on tightening underwriting and funding channels, applying a conservative approach to which industries and locations will be served.
Velocity Group USA shared an internal memo to its ISOs with deBanked which detailed some instructions to brokers. Among these was the prompt for “our ISO’s to place more focus on essential businesses.” Non-essential businesses being categorized as community and recreation centers; gyms, including yoga, spin, and barre facilities; hair and nail salons and spas; casinos, concert venues, and theaters; bars and liquor stores; sports facilities and golf courses; most retail facilities, including shopping malls.
Placing a limitation upon funding like this has been a hot topic amongst the alternative finance community within recent days. A thread on the online discussion forum DailyFunder featured speculation and arguments over who is and isn’t funding anymore.
With so much of this being hearsay and rumor, deBanked found that asking funders directly whether or not they were funding currently to be the best remedy to this uncertainty. As of the time of publication, deBanked found that LoanMe had suspended funding until April 1 and that 1st Merchant Funding suspended further funding temporarily, with Vice President of Credit Risk Dylan Edwards saying that it would be “completely irresponsible” to continue funding.
In regards to how funders have been dealing with the coronavirus in their immediate surroundings, many, such as RDM’s CEO Reuven Mirlis, have noted that their employees have been offered the option of working from home, while others have made it a mandate to work from home. BlueVine’s CCO Brad Brodigan explained that this decision was part of their Business Continuity Plan and that prior to this they took extra measures so that their office was thoroughly disinfected and that social distancing was practiced within meetings of 5+ people.
Meanwhile Velocity Group USA has brought in Pat Gugliotta, the Commissioner of the business’s local fire department, to help establish contagion prevention protocols, based upon the screening processes practiced in JFK Airport. Explaining that this includes daily interviews with every staff member in the morning which look for trends relating to where they’ve been, who they’ve been in contact with, and how they’re feeling. As well as this, employee vitals are documented, with infrared thermometers being employed to monitor temperatures. “I’m trying to mirror our program to that program because I know the program works,” Gugliotta mentioned in a call.
While this may sound extreme, it must be remembered that this is an unprecedented crisis, meaning most strategies are untested and many funders are open to exploring novel precautions and solutions.
“This is an unprecedented event, which in its own right means you have to look at it differently,” BFS’s Ruddock explained. “I think it’s the sheer scope and speed that we have to cope with here. Scope meaning that this isn’t a hurricane which hits a region for a period of time and causes economic distress, which requires rebuilding, this is something that is international. This is not something that, like a recession, creeps at you over months and weeks and sometimes even signals orders. This is something that is happening with alarming speed. So in that way, these are unprecedented times now.”
This article will continue to be updated with funders who announce and disclose to us changes in their services, so check back to stay updated. Please do reach out if you would like to discuss the status of your company and how the coronavirus is affecting your business.
