How the $2 trillion US stimulus package could impact SMBs and alt lenders

Last week, the Senate passed a $2 trillion economic stimulus package in an effort to support the country's economy. The bill includes a $350 billion loan program for small businesses (those with fewer than 500 employees), which is meant to help those firms meet their payroll, utility, and insurance expenses in order to reduce layoffs, per CNBC.

the smb lending ecosystem

Small businesses would be able to apply for loans with private financial institutions that are part of the Small Business Administration's (SBA) lending network. At the time of this writing, the bill was expected to get final approval from the House of Representatives on Friday.Advertisement

The scheme allows small businesses to apply for loan forgiveness and waives personal guarantee requirements. Businesses will be able to apply for a loan as high as 2.5 times their payroll, or up to $10 million - whichever one is lower. Additionally, they'll be able to apply for forgiveness of the loan, or at least part of it, depending on how much of it they used during the eight weeks following the loan approval.

Interest rates for the loans will be capped at 4%. Of note, conventional SBA loan requirements will be waived: Typically, to be eligible for a loan, credit must not be available somewhere else, and borrowers have to provide a personal guarantee or collateral - but that's not the case for these loans. Small businesses will also be able to apply for a $10,000 emergency grant.

That said, there's still a question about when small businesses will be able to access the capital - and alt lenders may be able to help speed up the process.
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  • SBA loans typically take some time to be processed, which could leave small businesses and their employees vulnerable. Such loans usually take two weeks to be processed, but Andy Cagnetta, CEO of brokerage firm Transworld Business Advisors, told Forbes that some businesses had to wait up to six months to receive their loans after Hurricane Katrina. This could be too long of a wait for several small businesses: In 2017, 41% of small business owners reported that they didn't have a financial backup plan in case of an emergency.
  • Alt lenders could help make these loans available to small businesses at a quicker pace. Earlier this month, Financial Innovation Now, an industry group representing nonbank finance companies including Square, PayPal, and Stripe, sent a letter to Congress asking to be included in any emergency government funding initiatives. Such companies could leverage their digital solutions to approve small businesses for loans quickly. The UK faced a similar issue recently and was criticized by alt lenders for not including them in a similar scheme. While the UK has since made changes to allow alt lenders to be accredited by the British Business Bank to offer loans to small businesses, this process could still take months. Congress should therefore work as quickly as possible to include alt lenders in the initiative, by altering its regulations around such loans, in order to give small businesses the best available options in the immediate future.

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