Nonbank fintechs may be left unable to contribute to the United States government’s relief plan for small businesses hit by the COVID-19 crisis.

On April 3, the U.S. Small Business Administration (SBA) launched a Paycheck Protection Program (PPP) as part of the federal government’s $2 trillion coronavirus relief package. The PPP aims to support small businesses during the pandemic by providing them with access to low-interest, forgivable loans.

The $349 billion loan program — specifically targeted at Main Street firms that need urgent liquidity to cover their payrolls and other expenses — is actively seeking to enlist private-sector lenders such as banks and credit unions to service the PPP loans.

Yet as a Law360 report indicated on April 6, nonbank fintechs may not be authorized by the U.S. Treasury and SBA to service the loans — notwithstanding the fact that they have the technology and networks to originate a high volume of loans efficiently.

One area of concern is ostensibly that federal officials judge that non-bank fintechs lack robust enough anti-money laundering (AML) compliance measures to satisfy the terms of the Bank Secrecy Act — a precondition for gaining approval as a PPP lender.

Scott Pearson, a financial services partner at Manatt Phelps & Phillips, told reporters that the government had not laid out clear guidance for fintechs to secure certification as lenders under the program:

"Essentially, this [AML] rule means you won't see any marketplace lenders or other fintech companies making these loans. They may act as brokers, going to their customer bases and working with banks to help the banks make loans, but I don't think that they're going to be making the loans themselves."

Another obstacle is that the low-interest rate on PPP loans — set at 1% — may not be favorable enough for small-scale fintechs, Arnold & Porter partner Michael Penney has noted.

Crypto and coronavirus

Lending is not the only avenue that fintech and crypto-related firms are pursuing in order to support communities and sectors adversely affected by the COVID-19 pandemic.

A range of charitable donations programs have swiftly been launched by major industry players; developers have also pointed to blockchain technology as a key tool for protecting digital privacy during an era of likely “surveillance creep” as governments look to track citizens’ health and movements in a bid to control the pandemic.