Fintechs Unable to Participate in Relief PlanColin Baseman
Lenders are likely to struggle – their contribution to the relief plan aimed at small businesses may fail. COVID-19 hit most small business owners and, once the pandemic passes, they will seek support. The crisis won’t let their businesses develop or even restore after such a stressful period.
In the beginning of April, a few weeks ago, the Small Business Administration decided to create a PPP. The so-called Paycheck Protection Program became part of financial support that offers two trillion USD. It will serve as a relief package for those who seek help. Its mission is to help people dealing with small businesses to survive the crisis by offering owners loans with interest rates that are significantly lower than what they usually are offered.
The current loan plan reaches 350 billion USD. Most of the money is aimed to help Main Street companies to cover some of their expenses. The loan scheme is looking to involve all sorts of lenders to participate in the program. In fact, credit unions along with banks are urged to provide their assistance.
What some experts say is that Law360 report informed that lenders from private sectors do not have authorization from the U.S. Treasury. Unfortunately, they’re not authorized by the SBA, either. If they were, it would permit them to service various loans required to support small firms. However, we cannot ignore the most important aspect of the issue – all those sources have means as well as ways to provide great quantities of needed loans quite efficiently.
Concerns and Measures
There’re a few areas of serious concern. One of them is related to the federal officials. They claim that private lenders lack measures that state institutions apply in order to fight money laundering. As a result, this sort of restriction means that fintechs cannot satisfy and meet the terms, conditions and requirements applied by the Bank Secrecy Act. Only when the authorities approve the lender, can he provide support and participate in the plan. That’s a precondition that allows private sector lenders to offer their loans to owners managing small businesses.
Financial analysts report that the U.S. government hasn’t yet established specific directions for non-bank lenders. It means there is no way fintechs would manage to secure certification that is expected from lenders operating under the program. The scheme could be more efficient if the government allowed private-sector lenders to do their part of the deal. However, officials would need to cancel some certain limitations and restrictions to make the processes smoother.
According to Scott Pearson, anti-money laundering rule excludes marketplace lenders. It won’t let us see other fintech companies make loans either. All those lenders may operate as brokers. In this case they will need to refer to their customer bases. Then they will be able to cooperate with banks to help them make loans. Pearson, though, strongly doubts that all those lenders would be making all those loans themselves.
Crypto Finds Solutions
Another issue is that the 1% interest rate applied to the program’s loans may not look as favourable, especially if we are talking about smaller fintechs. Lending is not the only sphere. As a matter of fact, fintech and firms dealing with cryptocurrencies are pursuing many other avenues in order to support communities and sectors that have suffered during the pandemic. There are a great number of charities and donation programs. Most of them operate under major industry players. Specialists point out that blockchain technology is what can give safety and security to digital privacy and should serve as a key tool during the crisis.
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