[Editor’s note: This is a guest post from Ryan Metcalf, Head of Public Policy & Social Impact at Funding Circle.]
The Paycheck Protection Program (PPP), with the help of fintech lenders such as Funding Circle, successfully provided U.S. small businesses experiencing extraordinary financial challenges during the COVID-19 pandemic with nearly $800 billion in critical funds. The positive impact of the program on Main Street was undoubtedly significant, helping business owners keep their doors open and their employees on payroll. Additionally, the American Rescue Plan Act allotted $10 billion to fund the State Small Business Credit Initiative (SSBCI) over the next nine years, dedicating more money to continue to help small businesses recover and grow.
Following the PPP, the government should consider three key changes that will ensure the billions of taxpayer dollars invested in these programs effectively reach small businesses, including those in underserved communities nationwide, and are protected from fraudulent abuse.
Change #1: Adopt Application Programming Interface (API) technology
In 2019, Congress passed the Taxpayers First Act requiring the Internal Revenue Service (IRS) to develop an automated system to receive third-party income verification forms (4506-T, now 4506-C). This system is intended to replace the current system, which relies on semi-secure fax. The 4506-C form allows taxpayers to give their permission to the IRS to send a summarized transcript of their tax returns to an authorized third party (i.e., SBA or lender). The IRS has already been accepting e-signatures since 2011 and is able to send 4506-C tax data to third parties online, although in an extremely limited capacity.
What is needed is the execution of the Taxpayers First Act and adoption of the API technology, which are programs that instantly transfer data. Adoption of the API would allow the IRS to send data to lenders, with taxpayer permission, instantly and securely, rather than waiting days or weeks for paper processing. Lenders use that data to verify the authenticity of tax returns and financial information. If the standard delay, spanning from two to eight days, was replaced by instant processing, tax data could also be used for instant validation of the true identity of the applicant for verified credit decisions. This would vastly expand access to and the speed at which deserving Americans are able to access credit. The technology would also eliminate the potential for fraudulent manipulation of the program. [Read more…]