Online lending platforms come to the rescue of the Paycheck Protection Program
When auto repair shop owner Michael Hannah applied for a second paycheck protection program loan from his long-standing bank, BOK, earlier this month, he was greeted with noises of silence.
“I’m on a waiting list. They didn’t answer me. I couldn’t even apply, ”said Hannah, owner of Hannah’s Mastertek in Aurora.
In some ways, this was déjà vu for Hannah, who, like many other small borrowers, was overlooked or stuck in the mad rush last spring to secure the federally guaranteed loans, which were becoming forgivable if the he money was spent mainly on salary expenses. Although she applied early, Hannah had to wait and watch the money run out.
He was rescued when Congress provided another round of P3 funding, allowing him to receive the $ 36,200 he requested, the same amount he is seeking this time. But it took weeks longer than expected, and he wasn’t going to wait for a rehearsal.
“I have a great banking relationship with BOK, but we still haven’t been contacted. And I couldn’t get the PPP canceled on the first loan, ”he said.
Hannah turned to Lendio, an online marketplace where small business lenders compete for loans. On Tuesday he submitted his documents online and the next day his loan application was sent out. He hopes to have his money in a few weeks.
“Lendio has ended up being one of the greatest platforms to use for underserved and unbanked or unbankable people,” said Bill Airy, franchise owner of Lendio Denver.
Airy said he and his wife Leanne alone processed 1,500 PPP loan applications and helped provide $ 32 million in loans last year. Nationally, Lendio has made more than 100,000 loans and made $ 8 billion with a fraction of the staff a large bank would typically employ and the plan is to do a lot more this time around.
BlueVine, Credably, LendingCircle, Intuit Quickbooks, OnDeck, PayPay, and Square are some of the fintech companies lending directly to businesses, while other platforms like Divvy and Kabbage use Lendio’s model to connect borrowers and sources. of capital.
Community lenders and even micro-lenders created to finance the smallest of small businesses are turning to or partnering with lending platforms to more effectively obtain PPP funds for their clients.
InBank, a community bank with offices in Colorado and New Mexico, individually underwrites PPP loans it submits to the SBA. And while it can work for larger dollar amounts, it is difficult to withdraw loans of a few thousand.
“We don’t do this in an automated fashion, but rather on a personal basis,” said Ed Francis, CEO and Chairman of InBank. Partnering with lending platforms such as Lendio, set up to handle a high volume of smaller loans, allows the bank to avoid turning down borrowers in need and who could become future clients. -he declares.
“There are a lot of fintech people who have good processes for small owners. We would not be doing them a good service, ”said Francis.
Colorado Lending Source, which like many micro-lenders had limited capital to work with, focused on answering questions and guiding borrowers through the PPP process rather than trying to create and finance loans.
“We’re doing things differently this time around. We’ve partnered with Lendio to make the lending process easier, ”said Laurel Walk, director of loans at Colorado Lending Source. The goal is to get more underserved small business borrowers to tap into public funds than they could last year alone.
Seventeen fintech lending platforms have made 18,167 loans worth $ 604.6 million through January 24, according to national figures provided by the SBA. As a benchmark, 614 credit unions with less than $ 10 billion in assets processed 17,958 PPP loans, although they made a higher dollar volume of $ 1.03 billion.
Large banks, defined as those with $ 10 billion or more in assets, processed slightly more loans per institution than fintechs, but they typically have thousands of employees to help manage the load. In terms of efficiency per employee and the ability to manage small loans, fintechs are hard to beat.
“We know in Colorado that 6,812 loans totaling $ 664.4 million have been approved through Jan. 24, but we don’t have other breakdowns for each state by type of lender, etc.,” Frances said. Padilla, director of the SBA’s Colorado district office. , in an email.
Lending platforms are distinguished by their technology and their ability to welcome new customers, regardless of their size. Lendio has 150 software developers who have worked tirelessly to retool the portal to work with the new SBA lending platform, Airy said. As the rules of the SBA evolve, they are able to adapt quickly.
Last year, a problem for PPP borrowers rejected or bypassed by their banks came to trying to establish a new financial relationship, which required compliance with Know Your Customer laws. Lending platforms are better equipped to quickly verify identities, making it easier for them to work with new customers.
But most borrowers should be repeat customers. Airy expects about 85% of loans to be “second draws” from borrowers who received PPP money last year, with 15% representing new loans. To qualify for a second draw, a business must have suffered a loss of revenue of 25% or more in the past year due to the pandemic, complicating the underwriting process and blocking some borrowers.
Francis expects aggregate demand for PPP loans to be lower than last year. The SBA capped the amount that can be borrowed at $ 2 million, down from $ 10 million last year. And while it expanded the list of people who can borrow, such as chambers of commerce and trade associations, businesses don’t face the same uncertainty as they did in April, when it was unclear how bad things could be. turned bad.
On the plus side, the SBA has also made the program more flexible. Borrowers only need to spend 60% of the loan proceeds on salary expenses to receive a rebate, not 75%. And they have the option of expanding that spending over 24 weeks, rather than the eight weeks required when the program is first deployed.
For Hannah, the money can’t come soon enough. Earlier this month, he had to fire one of his three mechanics after PPP funding was delayed by wrangling in Congress late last year.
While auto repair shops haven’t faced red-level restrictions like restaurants and bars, people drive less and need fewer repairs. Those in need of service chose to stay home and play it safe. Hannah said that before the pandemic, her workshop would typically work on a few hundred cars a month. Lately, the volume is approaching 70 per month, and her store grossed $ 250,000 less last year than in 2019.
“Time will tell when we can get our funds. If we can get them in two or three weeks, that will get us through it, ”he said.