US Government Qualifies Fintech Firms As Lenders in COVID-19 Relief Plan

Main Street businesses impacted by the COVID-19 crisis now can get help of fintech lenders thanks to the U.S. government.

On April 9, the U.S. Small Businesses Administration published its application form for fintech companies to sign on as lenders under the federal Paycheck Protection Program devised as a part of the COVID-19 relief plan.

On April 10, John Pitts, head of policy at San Francisco-based fintech Plaid, said that the move was “a critical step” which would expand the relief program and ensure that as many firms as possible get access to the aid they urgently need.

Fintech in the spotlight

The PPP — first announced as part of the U.S. government’s $2 trillion relief package on April 3 — is aimed at supporting small businesses impacted by the COVID-19 pandemic by giving them access to low-interest, forgivable loans.

While Treasury Secretary Steve Mnuchin had noted early on that nontraditional financial services would be allowed to participate in the program, rollout had initially been slow for nonbanks, Pitts said.

The administration first certified already-approved SBA lenders, which extended loan applications to their existing clients — this being “the easiest solution under a tight timeframe.”

A bunch of fintechs have already signed on after just a few days, while reports indicate that some banks are staggering with loan approvals, leaving small firms in limbo. This conjuncture could do much to demonstrate the advantages offered by new actors in finance. Pitts stated:

“One of the biggest advantages that fintechs have over traditional lenders is their ability to be more agile. Fintech lenders are digital-first and can process loans quickly — a matter of hours versus days compared to traditional lenders.”

Many banks have already stated that they will only extend loans to existing small business customers. For firms that may have never required a small business loan before — as well as for those perhaps to small to get a loan from a traditional bank — “fintech lenders will become a life-line,” he said.

The issue is not entirely resolved, though. While the SBA has finally made applications for fintechs accessible, “the Fed has to also do its part.” Pitts added:

“The Fed previously announced they would open a lending facility for all depositories participating in the PPP program and would extend the facility to fintechs ‘in the near future.’ Small businesses, and the lenders that support them, need access now.”