Non-bank Lenders may not take part in the funding process for small businesses provided by the Small Business Administration.

The $349 billion loan program put in place to help small businesses survive the current economic shut down caused by the coronavirus pandemic. The Small Business Administration has been reaching out to banks and lenders to service the PPP loans.

Small Business Administration

The Federal Government is concerned that non-bank fintech’s do not have strong enough anti-money laundering (AML) compliance measures to satisfy the terms of the Bank Secrecy Act. Adequate AML measures is a requirement for gaining approval as a PPP lender. Some non-bank fintech’s are going to have a hard time gaining approval by the SBA and the Treasury Department as a result.

Scott Pearson, a financial services partner at Manatt Phelps & Phillips LLP, commented on the situation saying “There was tremendous lobbying to get fintech’s involved in this because they’ve got the technology to originate lots of loans very quickly, but the way this program is set up, I think that there will not be many fintech’s participating as lenders.”

Smaller fintech’s also might find it challenging to participate in the program because the interest rate set by the Treasury Department of 1% makes it impossible for them to process and service the loans profitably. While banks and credit unions have access to funding at close to zero interest rates, the same is not true for many fintech lenders.

Given the current pace of loan requests, it is likely that the funds are exhausted before the fintech’s and the Treasury Department can reach an accord that allows non-bank lenders to participate in the program.