Fintechs help banks manage deluge of emergency small-business loans
A slew of fintechs are selling software solutions to lenders grappling with the influx of applications for emergency small-business loans.
Within days of enactment of the federal Paycheck Protection Program, online lenders, core-system providers and software companies churned out platforms and portals — often built on existing technology — that allow banks to accept applications under the relief program, originate loans, automate the underwriting process, collect documents and transmit the information to the Small Business Administration’s processing system. The products also help banks meet compliance requirements in the rush to help businesses survive during the coronavirus pandemic.
Mark Rockefeller, CEO and co-founder of StreetShares, a lending-as-a-service provider, said software like his company's onboarding and prequalification solution is essential for bankers, who are accustomed to making loans in person.
“That is the biggest problem with this entire PPP structure," Rockefeller said. "In an era where branch offices are closed and entrepreneurs and business owners are quarantined, how do you distribute this if not 100% digitally and remotely?”
Many of these providers say they have started conversations with dozens or even hundreds of financial institutions, report a handful have been receptive, and expect more to follow suit in the weeks ahead. Companies interviewed for this story generally did not provide names of their bank customers.
Jack Henry Lending, the loan origination division of the core banking software provider, said it has sent out over 400 contracts and is already helping 264 financial institutions take applications and relay approvals to the SBA for final clearance.
Numerated, a small-business loan prospecting and origination software provider, reports more than 90 community banks, regional banks and credit unions are using its PPP software.
Laso, a provider of artificial-intelligence-based lending software, predicts the number of banks using its technology for the SBA program will climb to 50 in the coming weeks. The relationships are primarily sourced through white-label channel partnerships with bank software-as-a-service solution providers.
The software company Treasury Prime offers technology for account creation as well as know-your-customer vetting and other compliance tasks. It recently partnered with Radius Bank in Boston and said together they have produced more than $1.1 billion in PPP loan applications in less than three days.
The Paycheck Protection Program, which is being managed jointly by SBA and the Treasury Department, is an effort to help small businesses keep their workforces employed during the coronavirus crisis. If businesses use these funds strictly for the purpose intended — mainly, to pay their people — the loans will be forgiven. As of midafternoon Tuesday, more than 4,700 lenders had approved about 1.1 million applications for $263 billion of loans, according to the SBA.
For some fintech lenders, creating software that smooths out the application process was a way to penetrate the PPP market until they could lend themselves.
StreetShares, for example, originally planned to make SBA loans once nonbank lenders were permitted. But the company changed direction and partnered with Fiserv instead to cater to its noncore bank clients. StreetShares provides a secure portal to help bankers review and prepare loan documents. It handles application processing and eligibility checks. StreetShares and Fiserv are not providing user numbers yet because their platform just launched on Friday.
For other providers, devising solutions that simplify online loan applications may be one way to support their small-bank clients that are facilitating emergency loans and solicit new customers at the same time — even if they do not make much money in the process.
“They’re trying to show their stuff,” said Todd Baker, senior fellow at the Richman Center for Business at Columbia University and Managing Principal at Broadmoor Consulting LLC. “It’s a great opportunity to get in quickly. Usually selling software to an enterprise is very complicated, but this is an emergency situation. If you show up with a great package, there is a good chance [banks] will take it.”
At the basic level, banks get a simplified SBA loan application platform. A more complete service, such as the one built by Jack Henry Lending, enables lenders to offer an online application with prequalification, a secure document portal, electronic submission to the SBA for approval, documentation for closing, electronic signature, and loan boarding, or automatic integration, to supported cores.
Another provider, Nymbus, pitches its SmartLenders Program as a bundled solution where lenders can point their clients to a portal link to submit their applications, and SmartLenders will take care of automating the requests, collecting documents and closing the loans. The company promises a weekly report of all PPP loans originated through the bank and to follow up on the SBA forgiveness process. The company declined to say how many banks have signed on.
Meanwhile, Unqork, a no-code application platform, recently announced a partnership with Deloitte to help lenders streamline the distribution of loans to small businesses, using tools from Plaid.
What they have in common
The big selling point, regardless of the provider, is digitizing a loan process that normally takes place in bank branches.
“Many small businesses have been dependent on physical branches for service and access to credit, so this digital capability is even more essential in this environment due to temporary branch closures and social distancing guidelines,” said Rob Eberle, CEO of Bottomline Technologies, another vendor that offers PPP loan software that incorporates business background verifications with LexisNexis and fraud checks with Socure.
Another selling point is speed. For example, MX, a data software company, said its application portal speeds up from 30 minutes to 30 seconds financial institutions' process for submitting approvals to the SBA. Laso reported its technology can safely deploy loans to as many as 1.25 million applicants per hour, using its proprietary AI and credit models.
And providers are finding ways to differentiate their products from competitors in a crowded field.
For example, Biz2X emphasizes that its Accelerate SBA platform can integrate with payroll companies to quickly get payroll data, a key to determining eligibility and loan forgiveness. The company also said the Accelerate SBA platform will track loan forgiveness eligibility and let banks service any outstanding loans that remain once forgiveness periods are expired — something it asserted all banks will have to deal with once the “mad rush” for originations slows down.
Brandon Dewitt, co-founder and chief technology officer at MX, said its Easy SBA Portal, which automates the application and submission process, is offered as an open source solution where financial institutions can download the source code and use it at no charge.
What they charge
Companies that act as agents to lenders are entitled to a slice of the processing fees that lenders receive from the SBA, with a max of 1% for loans up to $350,000, 0.5% for loans of $350,000 to $2 million, and 0.25% for loans above $2 million.
Software providers work out their own fees. Numerated charges an annual platform fee and a fee for each loan closed on the platform.
Some companies, including Bottomline and MX, say they will not take any fees at all. And Biz2X is offering Accelerate SBA to community banks and credit unions with assets under $10 billion for free through June 30.
“Bottomline is not drawing any revenue from this program,” Eberle said. “We thought it the right thing to do to help small business, help the banks that serve them and to help our country get through this extraordinary economic and health challenge." As of April 8, Bottomline said several banks were live on its platform, it had a handful of implementations going, and the company had spoken with more than 100 banks that were interested.
Of course, these programs give vendors a way to get their foot in the doors of new bank clients, an achievement that could prove extremely lucrative over time.