Fintech companies Intuit, PayPal and Square have officially been approved to participate in the U.S. Small Business Administration’s (SBA) $349 billion Paycheck Protection Program (PPP), which was enacted as part of the CARES Act last month. To recap, the PPP provides aid in the form of potentially forgivable loans to eligible small businesses, which loans may be used for payroll and other expenses. These fintech companies are now accepting loan applications. Other fintech companies, including Funding Circle, are awaiting approval to follow suit.
As we reported last week, initially there was uncertainty about whether nonbank fintech companies would be able to participate in the PPP, as the Treasury and SBA were in a time crunch to get the PPP up and running, and Treasury’s application for lenders did not initially include fintech lenders – only federally insured depository institutions, federally insured credit unions, and certain farm credit institutions. The rules that Treasury issued on April 2, 2020 preapproved traditional banks to make PPP loans as long as they were in good financial condition and not in trouble with any federal regulators. The rules stated that non-banks were required to meet other standards, including compliance with the Bank Secrecy Act.
These three fintech approvals are a step in the right direction, as many fintech lenders are well-positioned to extend loans to the small businesses with which they have relationships, as well as to new borrowers. The approvals come several days after incumbent SBA lenders were able to start processing applications, which could reduce the pool of funds available for new lenders entering the PPP market, given the $349 billion cap on the funds available for this first-come, first-served program. But some traditional banks have limited their own participation in the PPP, which may leave a lot of borrowers in need of alternative sources of funding through fintechs. Further, there is talk of increasing the funds available for the PPP through additional legislation. We will continue to provide updates as the PPP is expanded to other non-bank lenders, as well as any increases in funding available for this vital small business loan program.