Financial-technology firms PayPal Holdings Inc., Square Inc. and Intuit Inc. are starting to lend to small businesses that couldn’t get access to coronavirus relief funds through the biggest U.S. banks.

Fintechs had been pushing to provide emergency loans to small businesses since mid-March, more than a week before passage of federal legislation that created the Paycheck Protection Program. The companies have said that they can approve loans faster than traditional banks and reach the most vulnerable businesses but ran into obstacles before getting Small Business Administration approval.

“The PPP program has manual checks and processes that require time, and we’re doing the best we can despite having tech that can operate at scale and efficiency,” said Brian Peters, executive director of Financial Innovation Now, an industry group that counts PayPal and Square as members. Fintechs have had to “retool their lending programs to make PPP work.”

PayPal Chief Executive Officer Dan Schulman was on calls with the Treasury Department for weeks prior to getting PPP approval Friday, including speaking directly with Treasury Secretary Steven Mnuchin, according to a company representative. They discussed PayPal’s capacity and capabilities to get funds in a timely manner to small and midsize businesses, particularly those from disadvantaged areas or demographics.

One reason it took fintechs longer than traditional banks to participate in the PPP was that they had to wait on final authorization from the Small Business Administration, said Karen Mills, a senior fellow at Harvard Business School and former SBA administrator.

The Treasury Department and the SBA didn’t release the application form for fintech and other non-bank lenders until last week.

“I think the fintechs were working very hard on the front end, but the back end of the pipe that hooks up to the fire hose of money, they had to wait for the Treasury for that,” Mills said.

The SBA didn’t provide an immediate comment.

PayPal, Square and Intuit all serve small businesses that are often overlooked by large banks because it’s costly for them to underwrite very small loans, according to Jo Ann Barefoot, chief executive officer of the Alliance for Innovative Regulation.

Smaller Loans
As many as 70% of PayPal’s small-business loans go to U.S. counties that have lost 10 or more banks since the financial crisis in 2008, according to Schulman. The company’s loans are generally less than $25,000 each -- something true as well for small businesses seeking help from PayPal under the PPP, Schulman said in an email.

Square also serves borrowers that “have been locked out of the financial system,” said Jackie Reses, Square Capital lead. Women make up 55% of Square Capital borrowers, and 37% are under-represented minorities, she said in an interview.

Under the PPP, financial institutions including Bank of America Corp. have been favoring existing small-business customers because the process is easer if a borrower has been previously approved. On Monday, a federal judge ruled that preferential treatment under the CARES Act wouldn’t be barred after Bank of America was sued by a number of small businesses for being left out.

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