Fintech lenders are critical to small businesses accessing PPP

As the U.S. Small Business Administration (SBA) head, Isabella Casillas Guzman, announced the closure of the nearly $800 billion Paycheck Protection Program (PPP), policymakers and the media have been disproportionately focused on a very small percentage of fraud that took place in the program. What’s seemingly forgotten is the unprecedented public-private partnership that facilitated over 11 million forgivable PPP loans and supported more than 8.5 million small businesses and their employees during the COVID-19 pandemic. 

One of the unique features of PPP is that the program did not limit which financial institutions could participate in the program. Over 5,500 lenders — traditional banks, credit unions, financial technology (fintech) firms, community-based financial institutions, and their employees continue to work long hours to help their clients overcome the pandemic’s economic impact. 

The pandemic accelerated the already-rapid digitization process for financial services due to the required social distancing and remote work environments. Thankfully, policymakers chose to leverage financial technology firms as part of the small business relief efforts. Within the PPP, 41 fintechs were collectively the third largest facilitators of PPP based on the number of loans (18 percent) and loan dollars (8 percent) distributed by lender type.  

The New York Federal Reserve recently published research notes that financial technology firms served borrowers who would not have received PPP loans otherwise. These borrowers were more likely to lack banking relationships, be minority-owned and have fewer employees. Further research confirms that a higher share of applications by Black-owned businesses were approved by fintech lenders as compared to firms with white, Asian or Hispanic owners. 

The ease with which these online lenders can serve such customers, especially in a pandemic, mirrors a larger trend. According to the Federal Reserve’s “Annual Small Business Credit Survey,” the number of U.S. small businesses that applied for credit with an online lender increased from 8 percent to 33 percent from 2010 to 2019. In fact, online lenders now disproportionately provide more access to credit to underserved communities than traditional financial institutions.  

As the economy recovers, access to capital will remain an issue for small businesses, especially those in underserved areas. The Biden administration can build upon the gains in underserved communities’ access to capital with PPP and technology in two key ways: By fully implementing the 2019 Taxpayers First Act and implementing technology upgrades to expedite lending to all communities and significantly reduce fraud. 

Specifically, technology that would allow the Internal Revenue Service (IRS) to send data to lenders, SBA, or other government agencies participating in aid programs, with taxpayer permissions instantly and securely, rather than waiting days or weeks for paper processing. Lenders could use that data to verify tax returns and other vital financial information. 

While the PPP is ending, it is important that policy makers remember the important role fintechs and other alternative lenders played in bringing PPP funds to millions of small businesses. It is also not too late for the Biden administration to modernize government and create more efficient, nimble and protected programs. Fraud is not unique to PPP or fintechs, it is a systemic problem with the government, and investing in the technology and systems across the federal government to combat fraud and abuse should be a top priority.   

Scott Stewart is the CEO of the Innovative Lenders Platform Association. ILPA is the leading trade organization for online lending and service companies serving small businesses.