A high-profile roster of FinTech pundits and personalities advised the House Committee on Small Business on the quickest way to get aid to owners in order to slow unemployment and economic hardship as a result of the coronavirus.
The conference call, which took place on Wednesday, was hosted by Reformed Broker and Ritholtz Wealth Management CEO “Downtown” John Brown and included Riskalyze CEO Aaron Klein, Vestwell CEO Aaron Schumm, and others.
“There’s a lot of concern,” Klein said when asked about the call. “Normally there would be a marketing effort to create awareness about the Paycheck Protection Program (PPP) in the CARES Act. I pushed back on that and said, ‘You guys don’t have an awareness problem, you have an execution problem.'”
The reason, he noted, is the massive increase in funds with which the Small Business Administration will soon be dealing.
“They’re trying to push something like 10 times the annual volume through the SBA in a period of about two months. I think the SBA lends an average of about $35 billion a year and they’re now trying to push $350 billion in 60 days. It’s a massive undertaking.”
Vestwell’s Schumm agreed, predicting an “overwhelming rush” on lenders to process loans to help keep small businesses afloat.
“However, collecting the data necessary for the loan eligibility is not going to be easy,” Schumm warned. “The faster and cleaner companies like Nav and BlueVine can get the information, the faster the relief comes to businesses.”
Part of the issue—unsurprisingly—is the bureaucracy and paperwork.
“The two biggest things that hold up SBA loans are documenting personal guarantees on the part of business owners and documenting the fact that they have exhausted all other possibilities for sources of capital, and the SBA is truly their last resource for a loan,” Klein explained. “They’ve waived all of that with this program.”
According to the Treasury Department, the Paycheck Protection Program authorizes forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Payroll costs are capped at $100,000 on an annualized basis for each employee.
Simple and streamlined
The goal is to use the “SBA lending mechanism” to try to keep people employed, and they recognize simplicity is key.
According to Klein, “It will be something like ‘send us your payroll records and we’re going to lend you two months of your average payroll. After a certain period, you can send us another two months of payroll records. If you have kept all these people employed, then we’ll just forgive the loan.’ It’s a pretty clever way to structure the program.”
Schumm suggested a standardized data feed for payroll records for any of his firm’s clients that are applying for aid, something he said would facilitate fast access.
“Banks are not set up for mass processing of small business loans,” he said. “One analogy given on the call was that it’s like asking a bespoke suit company to mass-produce medium white t-shirts overnight. This is where the speed and agility of FinTech can step in to help.”
“That was definitely of interest to the committee as they’re thinking about how they can help the SBA speed this up,” Klein agreed. “Concerns about the termination of retirement plans by small businesses were raised in discussions in the call’s aftermath, and relief on 401k funding obligations could be helpful and an interesting avenue for the committee to explore as well.”
“It was encouraging to hear the receptiveness of the House Committee to our input on suggested changes and definitions to the requirements or ideas on implementation,” Schumm concluded. “Seeing the government and citizens come together to solve problems for the greater good is a ray of light in this challenging moment for the country.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
