6 fintechs explain how they're gearing up for a fresh $320 billion round of PPP loans — and what pain points they're hoping to solve for small businesses and lenders
President Donald Trump signed a new stimulus package Friday, meaning the paycheck-protection program for small businesses will be replenished with $320 billion. The first phase of the PPP sparked backlash as funds quickly ran out. The government allowed alternative lenders to participate this time and broadened the reach of the program, but those involved still point to a laundry list of concerns. Even after the application is received, banks are struggling to process and underwrite loans for companies they don't have a banking relationship with. Experts warn that lenders and borrowers also need to consider how they will be be able to track the paperwork to ensure loans are forgiven. Visit BI Prime for more Wall Street stories.
President Donald Trump signed a new stimulus package on Friday that replenishes funds for the paycheck-protection program for small businesses, but hiccups around distributing loans in such a large-scale operation may be far from solved. The new package injects $320 billion into the PPP, which is aimed at helping small businesses with government-backed loans, after its initial $350 billion in funding ran out in just two weeks. The program sparked criticism as publicly traded companies took loans and many small businesses were unable to secure funds. To be sure, the government has looked to clarify guidance around who can get loans this time around. And in an effort to help streamline the process and cast a wider net, alternative lenders have been approved to distribute loans for the second round of funds. And while the hope is the newest round will reach small businesses truly in need, there is a chance the problems that existed the first time around will only be exacerbated with these latest set of loans. The PPP has been a confusing process for all Ocrolus is one of many fintechs working with either lenders or small businesses to help facilitate the application process. The New York-based startup, which raised $24 million in a Series B led by Oak HC/FC in June, works with lenders by digitizing documents, including those that play a crucial role in the underwriting process. "There seems to be a pain point in every step of the way," said Ethan Schwarzbach, head of business development for Ocrolus. "And that's not to criticize anything, it's more just the way things are. When you have to spin up a program like this so quickly and with such an amount of capital and, I would say, lack of guidance, that's a big problem." Schwarzbach told Business Insider the lack of guidance from the Small Business Administration is one of the reasons why the first round of funding mostly landed with businesses that were already customers of banks. The fact the Fed wasn't initially clear about buying back loans from lenders made banks hesitant to underwrite for customers they didn't have a preexisting relationship, he added. That lack of understanding also trickled down to the small businesses themselves. Marwan Forzley, CEO and founder of Veem, told Business Insider, borrowers didn't know where to start when it came to what documents to include or where to apply. Veem, which Forzley described as 'Venmo for business' and is backed by Goldman Sachs and Silicon Valley Bank, is leaning on the banking relationships it already has in place to streamline the process of connecting small businesses to banks that can lend through the SBA program. Forzley compared the situation to filing taxes, where entire industries are built around helping people file properly. Meanwhile, when it comes to the PPP, borrowers and lenders are adjusting on the fly. "It's not like this is a system that has been put in place that has seen a lot of time here to get ready," he added. "Things are in flux. Whoever's answering the phone is learning with you." The challenges of data As a relief bill was going through congressional approval, buzzy fintech Plaid, which is being acquired by Visa for $5.3 billion, started building a product to help banks and small businesses link into payroll data from providers like ADP and Gusto. Plaid serves as the data pipeline between consumers' bank accounts and fintechs like Venmo. And it's been an advocate for data control and transparency across financial services. Small businesses can collect their payroll data in several ways, from printing out records or sending in PDFs, John Pitts, head of policy at Plaid, told Business Insider. But efficiency is key, and time spent manually tracking down data could mean a business doesn't complete their application in time. "As you can see from how quickly funds were drawn down out of the initial pool — and I expect them to go even faster this time — speed is incredibly important to make sure that your small business gets access to the funds it needs," said Pitts. PayNet, a small business credit-score provider that was acquired by Equifax last year, rolled out a data platform that lenders can use to validate applicants' credit information. The ongoing PPP process has shed light on the lack of technology and data availability in the small business sector, Bill Phelan, cofounder and president of PayNet, told Business Insider. Spending time tracking down documents, then scanning, faxing, and emailing them around, won't work, Phelan said. "It has to be automated. You've got to have an API link set up, you've got to be able to ping databases in sub-seconds or seconds," Phelan said. Processing applications also proved tricky —and left a backlog But getting the application in is only half the battle. Once received, there is still plenty of legwork the lender needs to do. Biz2Credit, which traditionally works with small businesses to get lending online, has built out a platform that helps its partner banks with onboarding, origination and underwriting. Thus far, it's processed over $1.5 billion in loans, Rohit Arora, CEO and cofounder of Biz2Credit, told Business Insider. Naturally, a major part of the process is doing the proper due diligence on businesses, commonly referred to as know-your-customer or know-your-business. However, with some banks lending to new customers, or ones they don't have a lending relationship with, that can be complicated. With a majority of small businesses banking with the top 20 banks in the country, he added, this problem is exacerbated during the process as borrowers look for relief beyond the major banks that have been inundated with requests. "There's somewhat of a back-up demand from customers, especially at large banks who didn't get money in the first round. And I think for a lot of the large banks trying to accommodate anybody who is new to the bank, to me it looks impossible," Arora said. "And for a lot of smaller banks ... if they don't have the technology stack then they won't be able to do that." Rho, an upstart digital bank aimed at startups, has also been working to automate PPP loan applications. "Most financial institutions and by proxy us as well, are using the second tranche of funding to make sure that everybody that was in the queue for the first one that did not get it is able to get served," said Everett Cook, co-founder and CEO of Rho. With larger banks being overwhelmed by applicants, Rho saw a surge in interest from its existing and prospective clients. It's been providing assistance getting the applications together and submitting them to its network of partnering community banks. "It'll be a big challenging for people that are moving late because there are people that have been waiting basically since the day the program opened for funding," Cook told Business Insider. "Nobody was able to get 100% of applications through, so there's a pretty large backlog." Filing for loan forgiveness, too, may be a challenge Even once a small business secures a loan, it's not completely free and clear. To ensure the loan is forgiven, it's required to prove it spends the funds appropriately. Some say the focus should be on getting the loans distributed to those in need. Small businesses won't need submit documents to guarantee loan forgiveness until the end of June. That should be enough time to build out the necessary framework to collect and send the necessary documents. But others view it as a much bigger problem. "If you think the getting the money out was tough, imagine trying to forgive them all, and do it accurately and consistently," said PayNet's Phelan. Plaid is also working on a data tool for when small businesses will need to file for forgiveness, Pitts said. Arora also warned that it will be difficult. While banks might be able to manage it now via a patchwork process, to do so efficiently at scale is a different story. "I think that's going to be a big, big piece because that's where the real compliance piece also comes in," he added. "There will be a huge flood of work the banks will have to do at that point in time." Fintechs acting like banks, and banks acting like fintechs While fintech lenders like Kabbage and PayPal have been approved to issue PPP loans, many weren't given the green light before the first wave of funding ran out. In the interim, Plaid has seen increased interest from banks and fintechs. "We've actually had as many banks as fintechs come to us and express interest in this product for helping them with round two of the funds," Pitts said. And with the second wave of PPP funding coming, Plaid's fintech and banking partners are ready to go on day one, Pitts said. "This is accelerating the move from banks to act more like fintechs, and for fintechs to look more like banks in a lot of their core offerings," Pitts said. The silver lining to the entire experience could be increase collaboration and data-sharing between the two sides, Pitts added. Being able to share know-your-client data, for example, could be embraced. "I expect some of those street-wide solutions to be much more easily adopted, not only by the businesses but by the regulators," Pitts said, "because even the little pieces of them that were adopted in this crisis were so essential to making things work more efficiently."SEE ALSO: How big banks decided the futures of America's small businesses:The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief SEE ALSO: Leaked memo shows Bank of America's talking points for staffers on how to handle the next round of PPP loans — and warns that funds likely won't meet 'extreme need and demand' SEE ALSO: CEOs at Stash and Chime say they're seeing record signups as fintechs race to set up ways for customers to get stimulus checks quickly Join the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
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The federal government extended the Paycheck Protection Program after $130 billion out of $660 billion went uncollected. Here's what new applicants need to know.
The application deadline for the Paycheck Protection Program was extended on Saturday after President Donald Trump...The application deadline for the Paycheck Protection Program was extended on Saturday after President Donald Trump signed the extension bill that Congress passed into law. Potential applicants now have until August 8 to request federal relief funds under the program intended to help businesses affected by the coronavirus pandemic. Around $130 billion in funds were left over when the original deadline came on June 30, with some businesses not knowing they are eligible for the program. Visit Business Insider's homepage for more stories. President Donald Trump on Saturday signed into law an amendment to the Paycheck Protection Program that gives businesses affected by the coronavirus pandemic more time to apply for federal funds. The law extends the deadline to apply for the federal government's loan-based relief program to August 8. The original deadline to apply for the loans was June 30, but Congress moved quickly to extend the deadline after around $130 billion was left over from the initial $660 billion pot, NPR reported. The Senate initially approved the extension on Tuesday with unanimous consent, and the House of Representatives followed suit the next day. Trump signed the bill on July 4, giving potential recipients just over a month to apply for the remaining funds. As of June 30, more than 4.8 million loans have been approved totaling $520 billion, with the average loan amount around $107,000, according to the Small Business Administration. Here's what potential applicants should know before applying. What are Paycheck Protection Program funds Paycheck Program Funds are federally backed loans that businesses can apply for to help cover expenses and maintain worker levels. Though they start as loans, businesses that meet specific criteria from the SBA can apply to have their loans forgiven so that they don't need to be paid back. Part of the program is that no fees will be attached to the loans for small businesses, no collateral is required, and repayment starts after six months. Interest rates are also set at 1%, according to the SBA. Who can apply for Paycheck Protection Program Funds While the program is intended for small businesses, that title covers more than just family-owned hardware stores and ice cream shops. As Business Insider's Dominick Reuter reported, freelancers and self-employed workers including gig-workers can also apply for funds. Businesses with more than 500 employees can also access funds if they meet the SBA's size standards. Business owners who are unsure of whether their enterprise counts as a small business can use the SBA's size standards tool, located on its website. What July and August applicants need to know Loan applicants completing the process after June 5 are subject to new loan maturity guidelines. The SBA said recipients who applied before June 5 will be subject to a two-year maturity timeline while those applying after June 5 will have a five-year maturity timeline. Loans are also processed through local banks and lenders to streamline the process as opposed to having the federal government do it. The SBA provides a list of which lenders can process applications for and issue PPP loans on its website. How to get loans forgiven by the federal government The SBA's website says loan forgiveness will be based on "employee retention criteria" and only be given if the funds are spent on "eligible expenses." The Payroll Protection Flexibility Act recently amended the program's rules so that only 60% of funds received have to go to payroll expenses in order for loans to be forgiven, as Business Insider's Joseph Zeballos-Roig reported. Even if borrowers don't use 60% on payroll, they can still apply for partial forgiveness. Businesses seeking this option need to fill out a five-page form that can be found on the SBA's website to apply for forgiveness after reviewing the rules for forgiveness. For more info, Business Insider translated the 3 most confusing guidelines so you can apply for emergency funds »SEE ALSO: A US senator wants to propose legislation blocking middle seats on planes after he flew on a crowded American Airlines flight DON'T MISS: I flew on the 4 biggest US airlines during the pandemic to see which is handling it best, and found one blew the rest out of the water Join the conversation about this story » NOW WATCH: Inside London during COVID-19 lockdown
There are more expenses that qualify as 'utilities' under PPP regulations than you think. An employee benefits attorney breaks down what you can spend the money on.
Jennifer Berman is an employee benefits attorney for MZQ Consulting and Kelly Benefit Strategies. She says...Jennifer Berman is an employee benefits attorney for MZQ Consulting and Kelly Benefit Strategies. She says that many business owners may fear applying for the PPP loan now in light of confusing guidelines. But it could be a huge lifeline for entrepreneurs, especially in terms of covering utilities. Under the PPP guidelines, utilities consist of the usual suspects: electric, gas, water, and phone and internet service. But mileage on a company car and cell phone bills can also count if these utility services have been in place before February 15, 2020 and were claimed on last year's taxes. Janitorial expenses and cloud-based storage expenses don't count as utilities, however. Visit Business Insider's homepage for more stories. As an employee benefits attorney and consultant, I've helped a variety of small businesses use the Paycheck Protection Program (PPP) to their advantage. For farms, manufacturers, professional services, health providers, restaurants, and more, the PPP can be a lifeline during the coronavirus pandemic. But just like our response to the virus itself, many are still learning the ins and outs of the PPP. While new changes have added flexibility, there are still more expenditures that may qualify for reimbursement than you'd think. Utilities are forgivable — here's what falls under that category One unique aspect of the PPP is its approach to what's considered a "utility." Under new PPP rules, these expenses, along with rent and mortgage interest, are now forgivable for up to 40% of the loan. In addition to traditional utilities like electric, gas, water, and phone and internet service, mileage on a company car and cell phone bills may be considered utility expenses under certain circumstances. Of course, not everything is a utility. I've faced questions about fees for cloud-based storage, janitorial expenses, even inventory — no, these are not utilities, no matter how much we may suddenly wish they were. To qualify for PPP loan forgiveness, these utility services must have been in place before February 15, 2020. For transportation utilities (like fuel for the use of a business vehicle) to be eligible for forgiveness, they should have been claimed on last year's taxes. For example, if in 2018 you used a company car and deducted the appropriate mileage or depreciation on your taxes, you can choose to allocate PPP loan dollars to that expense (which would have been tax deductible this year) and be eligible for forgiveness. Take advantage of the PPP while it's still available, and make sure you cover your tracks Of course, now that Congress has extended the PPP spending timelines from eight to 24 weeks, small businesses have much more time to expend funds on payroll and may not be as focused on ensuring other expenses are covered. Still, business owners, especially those with fewer employees, should be cognizant of additional ways to maximize their PPP loans and ensure every dollar is covered. The best way to plan for this uncertainty is for businesses to play it safe — use the money now in ways that provide the most options to ensure it's covered later. My advice: Sit down, dig in, and digest the many terms and conditions that must be met for loans to be forgiven — it's more than you may realize. Know the rules, but also know that they're evolving. Remember, this is a very nascent program. Never before has the Small Business Administration (SBA), or our banks and financial institutions, been tasked with distributing this much money ($670 billion) to all types of small businesses in just a few weeks. Since the process is admittedly exceedingly (and at times, unnecessarily) complex, it's also imperative that you document everything diligently and in detail. Get a strong start on "audit-proofing" your PPP loan by establishing a clean and organized paper trail throughout the process. That means keeping PPP funds in a separate bank account and retaining all relevant documentation of covered expenses (i.e., payroll, rent obligations, utility payments, and mortgage interest). Embracing best practices early on can help ensure accountability, expedite loan forgiveness, and protect against potential questions. Finally, don't be scared away. Today, more than $100 billion is still on the table. However, demand for PPP has declined significantly as more businesses fear getting burned by confusing rules and deadlines. Following an initial rush of applicants and approvals in the first round, the volume of loan approvals in the second round dropped nearly 85% last month. This crisis has impacted nearly every industry sector and every small business. PPP can help most of them, albeit some more than others. It's not a perfect program, and it may not be easy, but the financial support it offers is real. If navigated carefully and used wisely, PPP just might make the difference between a temporary closure and a permanent one. SEE ALSO: One invoice financing platform is using blockchain to give business owners a safe and sustainable alternative to the PPP loan — here's how it works Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
The SBA released the application to have your PPP loan forgiven. Here's a breakdown of the long and complicated requirements.
Small business owners who applied for the Paycheck Protection Program (PPP) have a chance to have...Small business owners who applied for the Paycheck Protection Program (PPP) have a chance to have the loan forgiven by filling out the recently released Loan Forgiveness Application. Despite the new documentation, some business owners are in the dark about the process given the length of the application and stringent requirements. For one, borrowers will be ineligible for forgiveness on unspent capital — but the timing for spending it is more flexible. Make sure you document everything, including what you used to pay yourself alongside payroll information. Click here for more BI Prime stories. Last week, the Small Business Administration (SBA) and the Treasury released the Loan Forgiveness Application for the Paycheck Protection Program (PPP). Small business owners across the country who received funding from the SBA through the PPP were anxiously awaiting this documentation to get confirmation on important details surrounding loan forgiveness, especially borrowers who were funded in the first weeks of the program back in early April. The forgiveness application and its accompanying instructions came with quite a few unexpected developments for small business owners. The whole process is nothing less than a "ticking time bomb," according to Parker Conrad, CEO of payroll provider Rippling. "We had a tremendous amount of interest in the PPP loans, companies that were downloading the reports, that were applying for the PPP loans on Rippling," Conrad told Business Insider. "They were told there was a way to get this loan forgiven, and we'll get you some guidance later. And then the guidance comes out and says that in order to get the loan forgiven, you have to have already spent it, and I think a lot of people are saying that it's just not fair." Uncertainty still surrounds PPP forgiveness following the release of documentation Conrad said that due to the amount of uncertainty surrounding the process, many of his customers are uncomfortable spending their PPP funds without further and more specific guidance. Yet the application is clear that without having spent the capital, borrowers will be ineligible for forgiveness on at least a portion of the loan. Additionally, the length of the forgiveness application is likely to be a stumbling block for many small business owners, in Conrad's view. "The application is like a tax return. It's very long and complicated — it's not like the 1040EZ, it's like the 1040 long and hard," Conrad said. "For us, we're doing a lot of this for our clients, so it's a business opportunity for us, but at one point this was presented as a very simple loan application, and now it's become very complicated." Adding to that complication are a host of issues for which no answers exist as of yet. One example Conrad cites is the fact that the government expects borrowers to submit IRS Form 941, the Employer's Quarterly Federal Tax Return, as part of the forgiveness application, which many businesses will not have in their hands due to timing issues. "For most businesses, their 941 forms aren't available until after the end of the quarter, so the government is encouraging them to submit draft 941s," Conrad said. "But for any business that is doing this through a payroll company, there's no such thing as a draft 941 — the payroll company submits it electronically to the government after the end of the quarter and provides them an as-filed copy." In a press release that accompanied the release of the forgiveness documentation and instructions, the SBA noted that it will provide further regulations and guidance to assist borrowers "soon," but did not indicate a more precise timeline. So, with the loan forgiveness application in hand, what do PPP recipients know, and what's still left up in the air? Here's what legal and financial experts told Business Insider. One clear improvement: Flexibility is introduced For businesses that are starting to reach the end of the eight-week timeline for spending the proceeds from their PPP funds, or for businesses just beginning to allocate loan monies, the release of the forgiveness documentation did provide a bit of welcome flexibility on timing. In the original language of the PPP, borrowers had eight weeks beginning from the day they received funding — what the forgiveness application refers to as the "Covered Period" — to spend the money they received, whether or not this timeline was in compliance with their pay periods. Now, the program's "Alternative Payroll Covered Period" allows companies on a biweekly or more frequent payroll schedule to begin their Covered Period on the first day of their first pay period following receipt of the loan. Limits regarding workforce and pay decreases appear to have been set aside In the original terms of the CARES Act, borrowers were required to meet guidelines regarding rehiring a certain percentage of their workforce by June 30 and, separately, not reducing pay by more than 25%. "This application changed that," Johnny Wang, a St. Louis partner at the law firm Stinson LLP, told Business Insider. "Let's say that you let everyone go on February 15, you got your PPP loan and hired back half of your employees, and then the payroll period before June 30, you hired back the rest of your employees. Normally, that would have reduced your amount of loan forgiveness. This application seems to say that loan forgiveness reduction based on the FTE levels wouldn't occur." Wang said that the application sets out the same basic premises for pay reductions: As long as employees' pay is brought back up during the covered period, borrowers are not subject to loan forgiveness reduction. "Some of these changes could be as a result of nonessential businesses getting this PPP loan money and not then being able to spend the money because they weren't able to operate," Wang said. "Because of that, their expenses would be occurring toward the end of the eight-week period, and it would reduce their loan forgiveness amount without these accommodations." Owners must report payments made to themselves Owners are required on the forgiveness application to identify the total amount they've received from PPP funds. This stipulation was not previously alluded to in the program documentation, and Wang said he believes this is designed to control the potential misuse of funds. Owners who max out their compensation from PPP funds, taking the full $15,384 available (what $100,000 breaks down to for an eight-week period) will attract an audit and possibly other attention if they didn't receive compensation in 2019 or claimed significantly less in compensation last year than what they've assigned themselves. "This instruction is likely intended by SBA to relate to the certification of need by owners to ensure employee retention — not lining their own pockets," Wang said. When all else fails, create a paper trail With a great deal still left to be decided, and SBA guidance forthcoming that could change even that which has been determined to date, keeping plenty of accurate documentation of each dollar of PPP funds spent is the best strategy to maximize forgiveness, Nick Kolbenschlag, the cofounder and managing partner of the financial-services firm Crown Wealth Group in Charlotte, North Carolina, told Business Insider. "If you have a separate bank account, when you make a contribution to a 401(k) plan, move that exact amount over so that you have that perfect flow. Then, print out the transaction from the bank account, print out the transaction from your retirement plan provider. Capture each of those steps as they are cleared," he said. "It might be overkill, but it might also make it really easy on you when the time comes."SEE ALSO: Amazon sellers share the 3 strategies they used to ramp up shipping and customer service during the pandemic NOW READ: The legal and tax implications of taking your company remote permanently Join the conversation about this story » NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence