Small businesses are the lifeblood of America and so many are struggling right now. But fintech can really make a difference here. This is why we made it a priority to focus on small business lending as the topic of our first webinar in our recently announced digital offerings. In the coming weeks you can expect more content, not just webinars but online town halls, workshops and roundtables. In these rapidly changing times we will help you make sense of it all by bringing the leaders in financial services together for learning and discussion.
On to a recap of yesterday’s engaging webinar. Not surprisingly, we heard across the board that call volume into small business lending platforms has increased dramatically as customers look for help and clarity on where they stand. Kabbage, Lendio and Opportunity Fund have all managed to switch to a fully remote workforce and continue to serve small businesses who have much different needs than just a few weeks ago. Kathryn Petralia of Kabbage and Luz Urrutia from Opportunity Fund shared the direct lending perspective while Brock Blake of Lendio shared the perspective of a small business lending marketplace.
Blake spoke on how both lenders and investors are thinking about the current market. From the originator side, around 50% of non-bank lenders have paused originations. There are also some investors who are in a position where they can safely hold on to capital until the situation plays out. The conversations they are having with small businesses spanned from those seeking additional capital to others who are in perhaps a more financially stable situation that are looking to pay off current loans to decrease risk.
The most important topic of conversation was the discussion around this week’s government stimulus package (called the CARES Act) that includes $349 billion in loan guarantees for small business. This is going to result in a tsunami of loan applications as any business affected by the coronavirus will be eligible for a loan. The Small Business Administration (SBA) is working with severely outdated technology and they were never set up to handle this kind of loan volume. Outages are plaguing the system already as small businesses are applying for financing before the stimulus package is signed into law. Fintech companies are ready, willing and able to help and really need to be an integral part of this program if the money is to reach small business owners in a timely fashion.
There are also aspects to consider regarding the SBA loans themselves. These are loans that will be guaranteed by the government with funding supposedly provided to the lender in short order. Although, it is possible that the SBA could end up providing the capital directly, that is unknown at this point. The loans will carry a 3.75% interest rate and a 10 year term but a portion could be forgiven down the road. The loans are a flat rate for everyone (there is no risk-based pricing) as they are designed to help any affected small business get back on their feet. Of course, probably the most important aspect of these loans is the speed in which this money reaches small businesses. Guesses from our panel ranged from an optimistic 10 days to three or four months, a time period which would be devastating to many small businesses.
While we are in challenging times it’s not all doom and gloom. Luz Urrutia shared an uplifting story of how a restaurant client is helping provide food for school districts that are closed. Brock Blake spoke about how he is seeing the fintech community come together to solve new problems. More conversations are happening and companies are stepping up to see how they can help others navigate the current situation. We’re also likely to see innovation and long term improvements to small business lending. Petralia spoke about how her fellow co-founder Rob Frohwein came up with the idea to let consumers purchase gift cards to small businesses. Within days the company set up the landing page for ‘Help Small Business’, an offering to help small businesses that are closed generate new revenue.
If you’re interested in listening to the entire webinar you can access the recording here.
More from LendIt Fintech
Our next webinar is called Consumer, Paystubs & Fraud: Insights & Digital Solutions on Tuesday, March 31. Sign up here to join us as Chad Gray, Director National Accounts at Equifax, will discuss the red flags associated with consumer provided pay stubs,
the money that consumers don’t tell you about, the way verified data can help increase your funded loans and more.