Need to Know
- Following in the footsteps of PayPal, non-bank fintechs Intuit and Square have been approved to distribute direct loans to small businesses through the Small Business Administration’s Paycheck Protection Program (PPP).
- PPP is a $350 billion program designed to support small businesses with under 500 employees in staying open and keeping employees on payroll through the COVID-19 pandemic.
- Fintech companies are the perfect intermediary to offer loans, as many businesses already work with them and are familiar with their practices.
- Companies have been reporting slow approvals with traditional banks and rejected applications due to the businesses and banks having no prior relationship.
- Fintechs have been lobbying Congress for weeks to become PPP lenders and this signals a major win in terms of recognizing that fintechs can deliver the same value as banks.
Square and Intuit have joined PayPal in becoming approved loan distributors for the PPP. The three fintechs will now be able to send out portions of the $350 billion program to businesses under 500 employees in the US. The goal is to keep as many workers on payroll as possible during the COVID-19 pandemic.
Square and Intuit believe that they will be able to streamline the loan approval process as they deal extremely closely with small businesses on a daily basis. The approval process has been delayed for traditional banks, so by accepting fintechs into the process, it means more money will quickly reach those who need it.
These announcements are the result of careful and decided lobbying of US lawmakers over the past few weeks. Last month, the Financial Innovation Now (FIN), which represents PayPal, Square, Intuit, and Stripe, sent a letter asking to be included in any distribution of emergency funds.
“To ensure the success of the proposed small business loan interruption program, FIN urges Congress to direct Treasury to 1) provide conditional capital to alternative online lenders; 2) permit these non-bank lenders to disburse loans, including via partnership with financial institutions; and 3) allocate a portion of funds for distribution via these lenders,” the letter said.
“Small businesses are not well served by traditional financial institutions, nor will existing federal small business loan programs deliver funds soon enough.”
PPP loan approvals have been slow according to multiple sources and reports. Many businesses are running into roadblocks in search of support as they reach out to banks they do not have prior business with. However, many of these companies likely work with and have been verified by one of Square, PayPal, or Intuit, thus they would likely be able to access capital much quicker.
Due to the nature of many fintech business models (making it easier to access, track, and save money), utilizing them for the PP may be a smarter decision than using banks.
“We are focused on getting help to customers as quickly as possible as they navigate this unprecedented and challenging time,” QuickBooks EVP and GM Alex Chriss said. “As the financial source of truth for millions of small businesses, we have a unique opportunity to help remove friction from the system. QuickBooks Capital will automate much of the application process so small businesses and other eligible applicants get relief quickly.”
Square will begin rolling out loan applications this week.