The United States has more than 5,000 FDIC-insured banks, but only about 1,800 of them are approved to make SBA loans — which means only that many are allowed to make government-guaranteed coronavirus relief loans to small businesses. That's changing now, but how long it takes could make a big difference in the survival rate of America's small businesses.

Last week the Small Business Administration released the lender application for SBA-approval, which would allow other traditional lenders not already SBA-approved, as well as fintech startups, to make loans under the Paycheck Protection Program (PPP), the 100 percent forgivable loan (if used correctly) being offered to small businesses as part of the $350 billion in relief aid promised to them under the CARES Act. The idea is to accelerate the pace at which small businesses can gain capital as the coronavirus pandemic continues to shut down much of the economy. 

"If you're handing out survival kits to a million people, and you have five people handing out the kits, then the people at the end of the line – who knows if they're going to survive?" said Brock Blake, CEO of small business loan marketplace Lendio.

More than 4,400 lenders are participating in the program compared to 1,700 a week ago, according to data by the American Bankers Association. 

However, almost a quarter of small businesses have shut down already, at least on a temporary basis, according to a joint report by MetLife and the U.S. Chamber of Commerce dated April 3. Another 40 percent of those still open expect to shut down temporarily within two weeks, and 43 percent say they have less than six months before they'll have to shut down permanently.

So it's imperative that the government and lending industry deliver them capital as quickly as possible, but only a week into the program, some lenders have hit their limits on how much they can lend, most are serving just their existing customers, and some are opting out of the PPP altogether. All are a result of the program being underfunded; the White House has already asked for a $250 billion refill.

That creates significant disadvantages for many business owners who didn't choose, when they opened, a business banking partner licensed to make SBA loans, Blake said, and probably for no particular reason at all,. Banks still make small business loans outside of the ones guaranteed by the SBA. Plus, a bank might be SBA-approved but that doesn't necessarily mean they fund or participate in SBA loan programs.

"My biggest concern is the fact that they still only have SBA-licensed members participating in the [Paycheck Protection] Program," Blake said. "It's creating a monopoly for these lenders where they can just sit back and be choosy about which borrowers they fund and which ones they don't. Some lenders are trying to process as much [loan application volume] as they're getting but they're completely overwhelmed, while a bunch of other lenders are sitting on the sidelines wanting to help, but can't."

Banks have now processed 820,000 loans totaling $205 billion, according to ABA bank data. But many businesses continue to report they haven't received any funds.

The PPP loans are first come, first served. And even when more lenders become available to make PPP loans, borrowers can only apply for it one time with one institution.

Of the 2,000 or so lending partners on Lendio's platform, Blake said just a few hundred of them are approved to make PPP loans and even they, for the most part, are prioritizing existing customers over new ones matched with them. Still, Lendio is working closely with them — mainly the community banks and credit unions — on creating and improving ways to fund more loans more quickly, Blake said, to be able to open the lines to new borrowers, eventually.

While traditional lenders like community banks are good at relationship building and making large loans, fintech companies like Kabbage, Funding Circle, and OnDeck excel at making small loans and managing high volume. PayPal and Square were among the first nontraditional lenders to win approval to make PPP loans, on Friday and Sunday, respectively. Square has 275,000 small businesses on its lending platform and two million on payments. PayPal counts 10 million in its merchant network.

Still, both quickly declared they would prioritize their existing merchant customers before opening up applications to new borrowers.

"[We will be] starting with employers whose application data we can verify automatically," Square Capital head Jackie Reses said in a statement shared with Cheddar. "We expect to expand access to more small businesses soon. We know sellers need financial support now more than ever, and we're committed to making funding accessible to as many small businesses as possible."

The story has been updated with information about additional fintech lenders.

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