How fintechs helped small businesses during the PPP
When the COVID-19 pandemic struck, state and local governments forced businesses to shut down or limit operations to slow the spread of the virus. These mandates almost sounded the death knell for the smallest of small businesses, those with 10 or fewer employees and little savings to cope with the disaster.
Fortunately, the federal government acted quickly and launched the Paycheck Protection Program (PPP), one of the most successful public-private partnerships in American history. By partnering with nearly 5,500 lenders, the United States Small Business Administration (SBA) processed nearly $ 800 billion in 100% repayable loans to small businesses.
The establishment of this public-private partnership to save America’s small business economy in the span of a few months is something to celebrate. However, some commentators have overlooked the critical role that FinTechs have played in the success of P3s.
When the PPP was first launched, traditional lenders often restricted access to the program to existing businesses or larger bank customers, thus exposing themselves to a much lower risk of fraud. However, they also have excluded millions of small businesses, simply because they did not have a business account with this institution. This has sparked outrage from national restaurant chains, hotels and sports franchises receiving PPP funds before true small businesses.
Congress and federal policymakers have wisely recognized that fintechs would be crucial in helping small businesses across the country without a prior banking relationship access PPP, as well as offering their digital technology, application platforms and know-how to traditional lenders. Since, well-known studies show that fintechs aid the smallest of small businesses access the program at the height of pandemic containments and quarantines. By making such a concerted effort to serve new customers, many of them from underserved communities, fintechs faced an increased risk of bad actors.
Even with PPP’s success against a Once-in-a-Lifetime Crisis, some have chosen to focus entirely on limited cases of fraud. Fraud is absolutely a problem in all government programs and all PPP lenders have been victims of fraud. However, this should not obscure the success of PPPs and the role of fintechs in transferring unprecedented amounts of capital into the hands of small businesses.
When fintechs entered the program, Congress and the SBA specifically educated lenders to rely on borrower certifications to facilitate rapid distribution of PPP relief funds. Most fintech leaders recognized and addressed this risk during the program and taken active steps to mitigate fraud throughout the PPP. In addition, fintech companies that were subject to these high risks helped to help law enforcement agencies bring perpetrators to justice.
In our view (reflected by both Congress and two presidential administrations), the limited number of frauds that occurred during the PPP was an unfortunate, but inevitable price to pay to save America’s most vulnerable small businesses, by keeping countless businesses afloat, millions of employees on payroll and avoid economic disaster.
When the government acts quickly to avert a large-scale economic calamity, there are bound to be those who will seek to defraud taxpayers for quick pay, whether it is P3s or state unemployment programs. Instead of pointing fingers, policymakers and the private sector should focus on creating systems and processes that make it easier for everyone to fight fraud, including APIs to help participants in government programs verify identity and application information, and to upgrade SBA loan program technology to better fit the 21st century. On the strength of its performance in PPP, the fintech industry stands ready to help create better processes and update government technology.
Scott Stewart is the CEO of the Innovative Lenders Platform Association. ILPA is the premier business organization for loan and online service companies serving small businesses.
Bill Briggs most recently served as Acting Associate Administrator at the US Small Business Administration (SBA) where he helped administer the Paycheck Protection Program (PPP).