When the COVID-19 pandemic hit, state and local governments forced businesses to close or limit their activity to slow the spread of the virus. These mandates were nearly a death knell for the smallest of small businesses, those with 10 employees or less and little in the way or savings to deal with the catastrophe.
Thankfully, the federal government stepped in quickly and launched the Paycheck Protection Program (PPP), one of the more successful public-private partnerships in American history. By partnering with almost 5,500 lenders, the U.S. Small Business Administration (SBA) processed nearly $800 billion in 100 percent forgivable small business loans.
Marshaling this public-private partnership to rescue America’s small business economy in the span of a few short months is something to be celebrated. However, some commentators have forgotten the critical role financial technology companies (fintechs) played in PPP’s success.
When PPP first launched, traditional lenders often restricted access to the program to current business or larger banking customers, exposing themselves to much lower fraud risk. However, they also excluded millions of small businesses, simply because they didn’t have a business account with that institution. This situation led to outrage over national restaurant chains, hotels and sports franchises receiving PPP funds before truly small businesses.
Congress and federal policymakers wisely recognized that fintechs would be crucial in helping the nation’s small businesses without a prior banking relationship access PPP, as well as offering their digital technology, application platforms and know-how to traditional lenders. Since then, reputable studies show that fintechs helped the smallest of small businesses access the program at the height of pandemic lockdowns and quarantines. By making such a concerted effort to serve new customers, including many from underserved communities, fintechs faced a heightened risk of bad actors.
Even with PPP’s success against a once-in-a-lifetime crisis, some have chosen to focus entirely on the limited instances of fraud. Fraud is absolutely a problem in every government program and all PPP lenders were subject to fraud. However, it should not overshadow PPP’s success and fintechs’ role in moving unprecedented amounts of capital into the hands of small businesses.
When fintechs entered the program, Congress and the SBA specifically instructed lenders to rely on the certifications of the borrowers to facilitate speedy distribution of the PPP relief funds. Most fintech leaders acknowledged and addressed this risk during the program and took active steps to mitigate fraud throughout PPP. Further, the fintech companies that were subject to these elevated risks have been instrumental in assisting law enforcement agencies in bringing the perpetrators to justice.
In our view (mirrored by both Congress and two presidential administrations), the limited amount of fraud that occurred during PPP was an unfortunate, but unavoidable price to pay to rescue America’s most vulnerable small businesses, keeping countless businesses afloat, millions of employees on the payroll and avoid economic disaster.
When the government is moving quickly to prevent wide-scale economic calamity, there are bound to be those who will seek to defraud taxpayers for a quick payday, whether it is PPP or state unemployment programs. Instead of pointing fingers, policymakers and the private sector should focus on building systems and processes that allow everyone to better combat fraud, including APIs to help government program participants verify identity and application information, and upgrade the SBA’s loan program technology to better fit in the 21st century. On the strength of its performance in PPP, the fintech industry stands ready to help build better processes and update government technology.
Scott Stewart is the CEO of the Innovative Lenders Platform Association. ILPA is the leading trade organization for online lending and service companies serving small businesses.
Bill Briggs recently served as the Acting Associate Administrator at the U.S. Small Business Administration (SBA) where he helped administer the Paycheck Protection Program (PPP).