Enlisted Late, Online Lenders Still Must Wait to Help Speed Up Stimulus

WASHINGTON — When the federal government opened its $349 billion small-business lending program last Friday, start-ups that specialize in giving such loans were eager to accept applications and send money to the restaurants, gyms and hair salons hit hard by the coronavirus shutdown.

Yet these online lenders were locked out of the program for the first six days, even as small businesses complained about the difficulties in getting loans through traditional banks.

Treasury Secretary Steven Mnuchin had said on Fox News on March 29 that online lenders could be a part of what is known as the Paycheck Protection Program in order to give small businesses more, and potentially faster, options to get the loans.

But it was only on Wednesday night that the Treasury Department offered online lenders a way to apply to take part in the program. The start-ups said they had received no guidance on how long it would be before they could begin lending.

The difficulties facing online lenders are another example of the dysfunction and disorganization that have slowed down the flow of loans to small businesses, even as President Trump has insisted that the program is going well, with only a few small glitches.

Financial technology companies like PayPal and Square, and start-ups that do only small-business lending, like Kabbage and OnDeck, have specialized in giving loans to the businesses that are the focus of the government program — those with fewer than 500 employees — and doing it more quickly than banks. Many of the lenders have expressed frustration that they have been shut out when they feel they could be the most useful.

“Every five minutes I’ve been refreshing the Treasury page like a maniac,” said Sam Taussig, the head of global policy at Kabbage, one of the largest online lenders for small businesses. “The businesses that we serve on Main Street, they only have about 10 to 12 days of cash on hand, and we are well past that in many places.”

The Small Business Administration and the Treasury Department, which are overseeing the loans program, didn’t respond to requests for comment about the online lenders. S.B.A. officials have said they are working to iron out any issues slowing the flow of money to business owners.

The lenders want to help distribute the $349 billion in loans the government is giving to small businesses to help them make payroll and cover other costs during the pandemic. The loans have generous terms, including a low interest rate and forgiveness for portions spent on fixed costs like rent and paychecks for employees who aren’t working.

The government has so far relied on traditional banks, like Wells Fargo and Bank of America, to distribute the loans alongside smaller community institutions. The banks have obtained approval for $95 billion of loans, leading lawmakers to discuss adding more money to the program.

But these large financial institutions have mostly been willing to work only with existing customers, making it hard for small enterprises that did not previously have accounts with the banks. Banks also tend to rely on paperwork and manual processes that can take days.

In part because of the cost of working with these loans, banks have taken a step back from lending to small businesses over the last decade, according to data from S&P Global Market Intelligence.

That provided an opening for online lenders, which have focused on automating the documentation and approval processes to reduce costs and make it faster. More than 25 such companies have gotten funding from venture capitalists, according to Pitchbook. Those numbers don’t include large financial technology companies like PayPal, Square and Stripe, which have also pushed into lending to small businesses.

Online lenders are a small part of the financial industry. But last year, they were the biggest source of loans for small businesses with medium and low credit profiles, according to data released this week by the Federal Reserve.

Brock Blake, the chief executive of Lendio, a website that works with online lenders and traditional banks, said that where traditional banks generally took at least a week to approve loans, online lenders could almost always do it within an hour.

Lawmakers have noticed the start-ups’ absence. Senator Marco Rubio, the Florida Republican who is chairman of the Senate’s small business subcommittee, has raised concerns about their slowness to participate in the program.

“To not leave behind underserved communities and those whose banks won’t help them, we need to get nonbank lenders, including fintechs, into the program as soon as possible,” Mr. Rubio said in a statement on Thursday. He said he was glad the Treasury Department had released the application for the companies and was “pushing to put that on a fast track.”

Online lenders are desperate to take part in the program because their business has largely dried up in the pandemic. What’s more, with attractive loans available from the government, few small businesses want any other kind.

The chief executive of Toast, which focuses on lending to restaurants, said in a letter this week that it was laying off or furloughing half of its employees. Kabbage made even larger cuts last month, according to Bloomberg. The price of shares in OnDeck, a publicly traded competitor, have dropped more than 50 percent.

The government loans are unlikely to be great moneymakers. Small businesses will pay almost no interest, and lenders will get a 5 percent fee from the government for any loans they originate.

The companies have lobbied aggressively to take part, asking Congress to allow them to participate and then pushing the agencies to issue guidance making it clear they would be included.

While waiting for approval, some of the tech companies have tried to figure out workarounds. Kabbage and PayPal have teamed up with banks to process loans for them.

Kabbage said it had already gotten 40,000 applications requesting $4 billion in loans. That allowed it to bring back some of its furloughed workers, but company executives said they would be able to do more robust business with full approval.

If they start distributing money on their own, online lenders may encounter the same difficulties that have hit their traditional competitors. While the start-ups can approve loans quickly, they have to process the applications with the Small Business Administration, and an S.B.A processing system has slowed down under the weight of the applications.

— to www.nytimes.com

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