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There are 30 million small businesses in America, and in the face of government-ordered quarantines, many are on a death spiral as their revenues approach zero and expenses accumulate. Tens of millions of jobs will be lost if this happens, and while providing aid to their furloughed employees is crucial, it may not be as important or complex as ensuring that those employees have jobs to come back to. The largest stimulus package in history provides $350B to assist these small businesses, but the last mile of identifying, adjudicating, and disbursing assistance without a sea of fraud is a new challenge, one that the government is wholly unprepared for, and for which technology is the needed answer. Now.
Why is this a challenging problem? Many small businesses—millions—are sole-proprietorships with no employees, no Federal Employer Identification Number, and no corporate tax return. Think Joe the Plumber, who has a real business and pays taxes on his personal tax return, but whose business is invisible to the federal government. How does the government know he exists? Yet another problem: businesses have wildly different margin and expense structures—sometimes payroll being a majority of costs, sometimes a small minority—in the face of various fixed costs like rent, equipment financing, and utilities. How do we adjudicate who gets what and that expenses are properly categorized? And lastly, how do we disburse these loans immediately without falling victim to a deluge of bad actors?
If we act quickly, we can solve all of these problems—identify, adjudicate, disburse—with technology that is now ubiquitous across small business.
Since the Global Financial Crisis of 2008, fintech—financial technology—has turned into a massive industry and is changing all areas of payments, banking, and finance. Virtually every small business, even a farmer at a farmer’s market, accepts credit cards thanks to companies like Square. APIs (application programming interfaces) exist to provide real-time visibility into bank accounts, brokerage accounts, 401ks, loan balances, and anything else that touches currency. Just like when you download an app on your phone and you give it permission to “access Photos” or “access Contacts,” your financial data can now be seamlessly permissioned anywhere, instantly. Just not to the government. And this is precisely what needs to change for small- and medium-sized business assistance to take hours, not months.
Consumers open up Facebook, Instagram, Snap, and WhatsApp dozens of times a day. Businesses, on the other hand, are checking Square, Stripe, QuickBooks, Netsuite, Brex, FreshBooks, Xero, Gusto, DoorDash, Mindbody, Toast and other tools that show them sales, orders, customers, and expenses. Almost every one of these platforms has been granted permission to access—read and write—bank accounts, and helps run the business.
The stimulus bill is going to direct funds through the Small Business Administration, but the SBA doesn’t really make loans. It simply guarantees loans made by banks. For many banks, the way you apply for an SBA 7a loan is to prepare tons of documents, go to your local branch, and then wait as long as 90 days. Wells Fargo has a fancy website, but for SBA loans it directs you to your local branch for a process that takes dozens of hours of form collections and physical signatures followed by months of waiting. Many private lenders approve loans in hours, so the SBA process has historically been an adverse selection lending trap.
It’s March of 2020, the world is under quarantine, all financial data exists in digital form, and billions of people use the internet—we can and should do better. Here’s how this can work, and Silicon Valley is standing by to build this, open source it, and get it out in days so that these small businesses can weather this storm.
Each and every financial services company can place a button on their website or in their app that sucks in relevant data from each business—much of it unforgeable, like credit card receipts as validated by the credit card processor—and spits out an instant machine readable package for aid. If Federal assistance needs to go through an SBA-approved bank (an odd construct, since most of these loans are meant to be forgiven) then this machine readable package can go out to whatever bank out of the 3000+ active SBA lenders can authorize it the quickest. To prevent fraud, that bank can be granted permission to the same set of financials—without loan officers, in person visits, scans and faxes. And if it comes back clean, route the money to the financial service that has already performed the Know Your Customer check on that merchant. A very complex problem is reduced to several hundred lines of code, aided by tools that nearly every small merchant in the United States uses.
None of this would have been possible in 2008, but the technology is there in 2020. We need to act quickly to make sure our small businesses make it to 2021.