Online lending platforms come to the rescue of the Paycheck Protection Program
When auto repair shop owner Michael Hannah requested a second Paycheck Protection Program loan from his longtime bank, BOK, earlier this month, he was met with the sounds of silence.
“I’m on a waiting list. They haven’t gotten back to me. I haven’t even been able to apply,” said Hannah, owner of Hannah’s Mastertek in Aurora.
In some ways, it was déjà vu for Hannah, who like many other small borrowers got overlooked or held up in the mad rush last spring to obtain the federally backed loans, which became forgivable if the money was spent primarily on payroll expenses. Despite applying early, Hannah had to wait and watch as the money ran out.
He was rescued when Congress provided another round of PPP funding, allowing him to receive the $36,200 he requested, the same amount he is seeking this time. But it took weeks longer than he expected, and he wasn’t going to wait around for a repeat.
“I have a great banking relationship with BOK, but we still haven’t been contacted. And I haven’t been able to get PPP forgiveness on the first loan,” he said.
Hannah turned to Lendio, an online marketplace where small-business lenders compete with each other to take on loans. On Tuesday he submitted his documents online and the next day his loan request went out. He hopes to have his money within a few weeks.
“Lendio ended up being one of the larger platforms to go through for the underserved and unbanked or the unbankable,” said Bill Airy, franchise owner of Lendio Denver.
Airy said he and his wife Leanne alone handled 1,500 PPP loan applications and helped deliver $32 million in loans last year. Nationally, Lendio did more than 100,000 loans and delivered $8 billion with a fraction of the staff that a large bank would typically employ and the plan is to do a lot more this time around.
BlueVine, Credibly, LendingCircle, Intuit Quickbooks, OnDeck, PayPay and Square are some of the fintech firms lending directly to businesses, while other platforms like Divvy and Kabbage use Lendio’s model of connecting borrowers and capital sources.
Community lenders and even the microlenders created to fund the smallest of small businesses are turning to or partnering with lending platforms to obtain PPP funds for their customers more efficiently.
InBank, a community bank with offices in Colorado and New Mexico, individually underwrites the PPP loans that it submits to the SBA. And while that may work for larger dollar amounts, it is tough to pull off for loans of a few thousand.
“We aren’t doing this in an automated fashion, but rather on a personal basis,” said Ed Francis, CEO and president of InBank. Partnering with lending platforms like Lendio set up to handle a high volume of smaller-dollar loans allows the bank to avoid turning away borrowers in need and who might become future customers, he said.
“There are a lot of folks out there that are fintech who have good processes for small proprietors. We wouldn’t be doing them a good service,” Francis said.
Colorado Lending Source, which like many microlenders had limited capital to work with, has shifted its focus to answering questions and guiding borrowers through the PPP process rather than trying to originate and fund loans.
“We are doing things differently this time around. We partnered with Lendio to help with the loan process,” said Laurel Walk, the chief lending officer at Colorado Lending Source. The goal is to get more underserved small-business borrowers connected with government funds than it could last year on its own.
Seventeen fintech lending platforms originated 18,167 loans worth $604.6 million through Jan. 24, according to national numbers provided by the SBA. As a point of reference, 614 credit unions with under $10 billion in assets processed 17,958 PPP loans, although they did a higher dollar volume, $1.03 billion.
Big banks, defined as those with $10 billion or more in assets, handled slightly more loans per institution than the fintechs, but they typically have thousands of employees to help handle the load. In terms of efficiency per employee and their ability to handle tiny loans, the fintechs are hard to beat.
“We know in Colorado that 6,812 loans totaling $664.4 million were approved through Jan. 24. But we don’t have any further breakdowns for each state by types of lenders, etc.,” said Frances Padilla, director of the SBA’s Colorado District Office, in an email.
Where lending platforms stand out is in their technology and their ability to take on new customers, regardless of size. Lendio has 150 software developers who worked around the clock to retool the portal to work with the new SBA loan platform, Airy said. As SBA rules shift, they are able to quickly adjust.
A problem last year for PPP borrowers rejected or bypassed by their banks came in trying to establish a new financial relationship, which required compliance with Know Your Customer laws. The lending platforms are better equipped to quickly verify identities, allowing them to more easily work with new customers.
But most of the borrowers are expected to be repeat customers. Airy expects about 85% of loans will be “second draws” from borrowers who received PPP money last year, with 15% representing new loans. To qualify for a second draw, a business must have suffered a 25% or greater loss in revenues last year because of the pandemic, which adds a complication to the underwriting process and will block out some borrowers.
Francis expects overall demand for PPP loans to be lower this round than last year. The SBA capped the amount that could be borrowed at $2 million, down from the $10 million maximum last year. And while it broadened the list of who could borrow, such as chambers of commerce and trade associations, businesses don’t face the same uncertainty they did in April when it was unknown how bad things might get.
On the plus side, the SBA has also made the program more flexible. Borrowers only have to spend 60% of the loan proceeds on payroll expenses to receive forgiveness, not 75%. And they have the option to stretch that spending out over 24 weeks, rather than eight weeks required when the program first rolled out.
For Hannah, the money can’t come soon enough. Earlier this month he had to lay off one of his three mechanics after PPP funding got delayed by Congressional wrangling late last year.
Although auto repair shops didn’t face Level Red restrictions like restaurants and bars, people are driving less and needing fewer repairs. Those needing service work chose to stay home and play it safe. Hannah said before the pandemic his shop would typically work on a couple of hundred cars a month. Lately, the volume is running closer to 70 a month and his shop pulled in $250,000 less last year than it did in 2019.
“Time will tell how soon we can get our funds. If we can get them in two or three weeks, that will get us through,” he said.
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