How the coronavirus response could transform SBA
Banks and fintech firms have starkly different visions for the Small Business Administration on the other side of the coronavirus outbreak.
Bankers see certain aspects of the pandemic's fallout as a validation of their traditional, dominant role in the SBA’s flagship 7(a) program, where they make up a majority of lenders and originate most of the loans. Fintech executives, by contrast, are lobbying for a direct lending role in the new Paycheck Protection Program — and they want to stay heavily involved when things return to normal.
The final outcome could hinge on how quickly banks and credit unions, and the SBA, handle a workload that could top 4 million applications. Another factor is the potential for fintechs to show they can effectively onboard and process applications through digital channels.
"There’s no way in the world any of these banks can handle that kind of volume on their own," said Rohit Arora, CEO of the online marketplace Biz2Credit.
“We think nondepository lenders provide significant value, not the least of which is our ability to use technology to streamline the decisioning process, the onboarding process, the fulfillment,” said Brad Brodigan, chief commercial officer at the online lender BlueVine.
“There are many times that crises challenge the existing status quo and can result in long-term benefit,” Brodigan added. “We think this may be one of those cases, where [the situation] forces us to look at and evaluate partnerships that will allow us to provide faster, easier access to funding in ways we hadn’t thought of traditionally.”
Bankers, who have creatively responded to the outbreak, view the crisis as an opportunity to bond more strongly with customers.
“Just based on the phone calls we’re receiving … people are valuing the relationship they have with their banks,” said Frank Sorrentino, chairman and CEO of the $6.2 billion-asset ConnectOne Bancorp in Englewood Cliffs, N.J. “If they don’t think they have one, they’re out looking for one.”
Sorrentino said banks have a real chance to win over new clients.
“I believe when we get through this, people are going to have more confidence in their banks,” he said. “They’re going to think very hard about the relationship they thought they might have had with some nonbanks. I actually believe they’ll come back to banks in a big way.”
No fintech firms participate in the 7(a) program. That isn't stopping them from finding ways to help banks serve small businesses in need.
Biz2Credit, which raised $52 million in June, recently announced a white-label platform banks can use to process Paycheck Protection loans. The Accelerate SBA platform features an automated decisioning engine and integrates third-party data from the IRS, credit bureaus and other sources.
Like other fintech executives, Arora would like a direct lending role for Biz2Credit. Still, he acknowledged the leading role banks will play in the response effort, adding that he is ready to support them.
“Banks and credit unions are in the critical position of facilitating the record-setting volume of small-business loans that will come through the CARES Act,” Arora said.
But Arora added that technology, which is central to the success of the Paycheck Protection Program, will also transorm the traditional 7(a) program.
The crisis "will force everybody to rethink how we administer these programs," Arora said. "Once business owners go through this kind of experience, they’re never going to go back to a nondigital experience."
The SBA “values the partnership with lenders of all types who will play an instrumental role in providing capital and support to America’s small businesses,” Associate Administrator for the Office of Capital Access William Manger said in a Wednesday statement.
The agency’s top priority “is making sure these programs are up and running as fast as possible,” Manger added.
The widely expected surge in applications should begin Friday, when the SBA and the Treasury Department, the Paycheck Protection Program's joint administrators, allow borrowers to send requests to approved lenders.
The program was included in the $2 trillion stimulus bill President Trump signed into law last week. It adds $349 billion to the 7(a) program’s funding authority, allowing businesses with up to 500 employees to pay employees and basic operating expenses such as rent, mortgage interest and utilities.
The program provides for loan forgiveness if borrowers use the funds for payroll and basic operating expenses within eight weeks after origination. The SBA will remit forgiven amounts to lenders within 90 days; it will also pay borrowers an origination fee.
Banks make the loans using their own funds, but credits under the Paycheck Protection Program are completely backed by the federal government.
“This is exactly what’s needed at this moment in time,” Sorrentino said. “This is exactly what banks and the SBA are supposed to be here for. ... We’re going to support small businesses so they can support their employees, so the vast majority of American workers will be able to put food on the table, pay their rent, pay their utilities and get through this crisis.”
ConnectOne owns Boefly, an online marketplace, which Sorrentino said is being positioned to help other banks lend under the emergency loan program.
“The reason we purchased Boefly ... was to add to our prowess as a technological player,” Sorrentino said. “That technology today, I believe, is going to prove very instrumental in ConnectOne being able to get that money from the SBA, through banks and out to clients in the fastest way possible.”
Boefly is “uniquely situated to help an enormous number of small- business owners apply for this program, then allow those borrowers to go to different banks if they don’t have a local bank they can deal with or don’t feel comfortable with a money center bank,” Sorentino said.
BlueVine is also working with several firms, including banks, to "discuss our partnership with them in distributing funding, either directly or through these partnerships,” Brodigan said.
“I do think there's a significant sense of urgency,” Brodigan added. “We’ve been working with a number of different partners to explore ways we can participate in a couple of different areas.”