CARES Act

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Part
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CARES Act

Traditional banks tend to have stricter Paycheck Protection Program requirements compared to fintech companies, though multiple fintech companies offer a limited loan range. Also, community banks are praised for using local knowledge and client relationships while handling PPP loans, while large bank are criticized for prioritizing bigger businesses and exclusionary eligibility terms.


Traditional Banks

  • Most traditional banks only offer the Paycheck Protection Program loans to small businesses that are their customers.
  • Some of them emphasize that they are reaching to their small business customers via email or phone, while others mostly rely on an online application form.
  • The Worcester Telegram claims that the response by community banks might have been more accurate and effective due to their knowledge of the local business landscape, tighter relationships with small business customers, and willingness to proactively reach to them.
  • The sentiment is shared by the President of the Independence Bank, who believes that community banks did a better job communicating with their clients. While the article is paywalled, screenshots can be accessed here.
  • According to the research by The New York Fed, there is indeed a correlation between loan approval and more personal banking relationships with small business clients at community banks.
  • At the same time, large banks have been criticized for prioritizing bigger companies, going after their own profit, and setting up exclusionary requirements.
  • Also, it has been noted that initially, most banks didn't have the IT infrastructure to enter the program right when it was launched.
  • Since the responses vary greatly between different banks and there are no comprehensive overviews of them in national, finance, or business media, we decided to cover two examples in more detail.

Bank of America

  • Bank of America was the first major lender to offer the Paycheck Protection Program.
  • It has also provided an additional $250 million to assist Community Development Financial Institutions with the Paycheck Protection Program.
  • Initially, the bank required an existing small business loan to be eligible. However, the requirements were later relaxed to just a checking account that was started before February 15, 2020.
  • Additionally, those applying for the loan can't have "a borrowing relationship with another bank."
  • After launching the online portal quickly (compared to other major lenders), it received 10,000 applications in the first hour. The program launched on Friday and by Monday, the bank got 177,000 applications for $32.6 billion, which accounted for almost 10% of the program's funds.
  • As of May 4, the bank received SBA's approvals for 265,500 loans or $24.9 billion in the second round of funding that started on April 27. It is the number one lender in the second phase of the program.
  • According to the press release, the second round has been successful due to faster and more effective collaboration with SBA.
  • The company plans to donate net proceeds from the program to small businesses, communities, and nonprofits.
  • It is worth noting that there has been controversy over the eligibility criteria set by the Bank of America, which resulted in the lawsuit against the bank. However, the court concluded that the requirements don't contradict the CARES act.

M&T Bank

  • Note: The article linked in this section is paywalled but the screenshots are available here.
  • A Buffalo, NY-based bank is the largest SBA lender in the Greater Baltimore area.
  • The bank has managed to get 96% of the loans approved in the first round. It secured $6.4 billion for its clients.
  • The leadership team identified 200-300 additional employees who could help with processing the applications. However, since the demand was much higher than they anticipated, around 2,000 employees were working on the PPP loans, including the president himself.
  • The bank has been working with SBA for years. Since it is invested in helping small businesses, the goal is to make the process easy for them and to increase the likelihood of the loans being forgiven.
  • For this reason, M&T Bank has opted against underwriting the loans up front.


Fintechs

  • There is little information available on fintech companies' response to the Paycheck Protection Program. Almost all the media coverage comes from the second week of April, when first fintechs, such as PayPal, Quickbooks, and Square became part of the program.
  • However, they can be divided into those that have been accepted as standalone lenders or companies that partner with banks to offer PPP loans.
  • Overall, fintechs tend to have looser requirements compared to additional banks. To apply for loans with the majority of them, small businesses don't need to have a business relationship with the company.
  • However, certain companies, such as Quickbooks, still only offer PPP loans to their customers.
  • Additionally, while businesses can receive up to $10 million in loans, several fintech companies have much lower limits. For instance, Lendistry provides up to $250,000 loans and Kabbage — up to $2 million.
  • Since there were no overviews of fintech companies' responses to PPP loans in news, business, or finance media, and, in most cases, not enough information in company press releases or in the PPP sections of their websites, we decided to present two examples of responses that received a more comprehensive coverage.

PayPal

  • PayPal was one of the first fintech companies to become a lender in the program. It was announced on April 10.
  • The company was eager to take on the challenge due to its dedication to helping entrepreneurs. It first started lending to them in 2013. It was also thankful that the CARES act allows non-traditional lenders to participate.
  • According to the press release, PayPal's advantage is that it can assist small business owners who would struggle to meet the requirements set by traditional banks.
  • MarketWatch also thinks that lenders like PayPal are a more viable option for small businesses that don't have existing banking relationships.
  • The loans are offered through WebBank, PayPal's lending partner.
  • While there are no requirements listed on the website or in any article about PayPal's participation, it is noted that those who want to apply for the loan should prepare payroll costs and related documentation for this and past year.
  • The company offers loans in the $5,000-$500,000 range.
  • There is also a program-related FAQ on the website, which details how to apply for the loan through Loan Builder. It notes that it is the only channel through which loans can be discussed with loan customers, though the company also sends out email notifications and updates.


Lendio

  • Lendio is "the largest small business loan marketplace in the US with more than 75 lenders in its network."
  • It participates in the program as a fintech that matches partner banks with PPP loans customers.
  • On April 1, it was announced that the company will hire up to 200 small business loan agents to help businesses navigate PPP loans.
  • The company wanted to hire those employees as quickly as possible, believing it will make small businesses access the money from the loans faster.
  • Their responsibilities were to encompass "fielding an influx of inbound leads, conducting needs analyses, explaining the PPP loan process to borrowers and gathering documentation."
  • It was later reported that the marketplace allows users to apply for a loan by filling a form on the website. Then, it works with partner PPP lenders to make sure that it will be approved by SBA.
  • While the country-wide results are unknown, Lendio helped more than 100 businesses in Erie. They received over $7 million in PPP loans.
Sources
Sources