U.S. small business rescue program gets capital and liquidity clarity, brings fintechs onboard

By Michelle Price and Anna Irrera

WASHINGTON (Reuters) - The U.S. government's $350 billion effort to help ailing small businesses took several steps forward on Thursday as regulators confirmed banks would not have to hold capital against loans made under the program, and non-bank lenders were admitted to it.

The capital treatment of loans was one of several issues banks had been seeking clarity on since the program was launched last Friday, while non-bank fintech lenders had also been pushing for days to be allowed to participate.

On Wednesday evening, the Small Business Administration and the U.S. Treasury Department, which are jointly administering the program, published the application form for non-banks, subject to certain requirements.

That means companies like Kabbage, PayPal (O:PYPL), BlueVine, OnDeck (N:ONDK) and Square (N:SQ) can directly join the program without having to partner with a traditional bank, increasing options for small and minority-owned businesses, many of which have struggled to find lenders to accept their applications.

Less than half of small businesses had turned to a bank for a loan in the past five years, according to Fed data released on Tuesday. Smaller businesses and those with black or Hispanic owners were more likely to have used online lenders, the Fed said.

"This is a pivotal moment. Fintech lenders, like Square, PayPal, BlueVine - many of these have massive install bases of U.S. customers," said Jared Hecht, CEO of Fundera, a small business loan marketplace that is helping to funnel applications to the scheme's participating lenders.

"Most importantly, these lenders are fast. They’re built for speed."

Launched as part of a $2.3 trillion congressional economic relief package, the $350 billion program allows small businesses hurt by the coronavirus pandemic to apply for government-guaranteed loans with participating lenders. Those loans will be forgiven if they are largely used to cover payroll costs.

As of Wednesday evening, more than $100 billion in funds had been authorized, according to a senior administration official, although it remains unclear how much of that cash has so far made its way into the hands of small businesses.

Banks, already straining under hundreds of thousands of applications, were bracing for another influx on Friday, when the program opens up to individual proprietors and contractors. Banks are still awaiting government guidance on how to process those applications, as well as key SBA language allowing them to release funds for loans already approved, according to industry officials.

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The U.S. Federal Reserve also on Thursday announced the terms of a liquidity facility for the program, saying it would dish out cash at a rate of 35 basis points, taking program loans as collateral. While that will help smaller lenders with limited balance sheets to front more loans, fintechs are not yet able to participate - although the Fed said it is looking to expand eligibility.