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Fintechs Conduits for Small Business Help in Senate Passed Bill

March 26, 2020, 12:30 PM

The Senate economic relief package to shore up small businesses includes nearly $350 billion for payroll assistance and would allow fintechs to join banks in making government-backed loans.

The chamber voted 96-0 to approve the estimated $2 trillion package (H.R. 748) Wednesday night.

The bill would create the Paycheck Protection Program, which some lenders would be able to access via the Small Business Administration’s 7(a) loan program.

Fintech and other lenders that aren’t part of the SBA 7(a) program would be able to participate directly through the Treasury Department, which would set requirements for their participation. Online lenders like Kabbage Inc. and Funding Circle have expressed interest in joining the emergency loan program.

Businesses with 500 employees or fewer, as well as sole proprietors, independent contractors, and gig workers could apply for up to $10 million in loans.

Interest on the 10-year loans would be capped at 4% and payments would be automatically deferred for up to one year. The loans would be 100% guaranteed by the federal government in case of default.

The program is intended to cover up to eight weeks of cash-flow assistance, according to a program overview released by the Senate Small Business Committee.

Approved uses for the loans include payroll, paid leave, rent or mortgages, utilities.

The bill directs regulators to assign the loans a zero percent risk weighting, designed to encourage lenders to participate in the program.

Express Loan Cap Raised

The bill would also raise the cap for SBA express loans to $1 million, from $350,000, through the end of 2020. The program’s loan cap would return to the lower amount starting Jan. 1, 2021.

The express loan program is only 50% federally guaranteed and would be limited to existing 7(a) program lenders.

One of the chief hurdles for lenders will be determining borrower eligibility. Lenders can make the emergency loans if a company was in operation by Feb. 15 and had employees or paid independent contractors.

The bill would also provide $10 billion total for emergency small business grants of up to $10,000 each. Those funds could be disbursed within three days of filing an application.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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