Small business aid through Fintech?

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.

That is by Alex Rampell, there is more at the link.  More generally, we need to be honest with ourselves about who is capable of generating rapid response and who is not.  Here is a Reason piece on the successes of the tech community.

Comments

After a decade in commercial credit at small banks working with the SBA, I and many of my colleagues absolutely concur. Running small business support through the SBA is a huge PITA/headache/HAMP-like fiasco waiting to happen. Hopefully we'll be wrong, but I dunno.

Be happy you're in the USA and not in Greece. In Greece, just like in Roman law days, you have to be present IN PERSON to get anything approved. I'm trying to and have developed real estate here and it took me about 7 and counting months when in the USA it might take 1 or 2 months max. And in fact, due to the "in person" requirement, since some of this real estate has joint owners who are in the USA and elderly, not willing to travel here to sign anything (nor to visit the consulate of Greece in the USA which takes a day of waiting at their office and a week of planning and scheduling), I've had to resort to the Greek workaround of 'forging' signatures (with the permission of the forged signer, which actually would be legal in the USA but not in the EU) and resorting on small favors from officials to bypass the normal procedures and enter the data into the system. Which makes you wonder, if you can bypass the system in such a manner, why they even have such requirements in the first place in Greece? Because 40% of the economy is state bureaucrats (25% is tourism, leaving 35% others) and they need 'something to do' which is hand out one or two permits a week and make you wait, beg and occasionally bribe them for it. Economist Hernando de Soto Polar would understand.

Bonus trivia: will the black market / 'gig economy' rise in status post Covid-19 in the USA? Along with inflation? I say yes.

"will the black market / 'gig economy' rise in status post Covid-19 in the USA? Along with inflation? I say yes."

Good points Ray!

Sadly, Greece sounds a lot like Hawaii.

Quelle surprise! Far too many U.S. government agencies are ossified bureaucracies incapable of generating a rapid response. Call it state incapacity libertarianism.

Banks also are ossified bureaucracies, and have been lending money now only to people who don't need it for a long time. The only solution to getting money somewhere quick is to bypass both institutions.

If fintech can move my money from one account to another in less than a minute, then I'll believe they can tackle this on. The rest of the world moves at the speed of light but our financial system is slow like Trump's CDC.

+1. I've had a running battle with the stupid "Venmo" people since some of our Millennial tenants pay through that app, since Venmo requires the landlord to be physically present in the USA with a US cell phone number. I could do some tech workarounds involving Wi-Fi and Google's "Fi" service, or sign up with AT&T's international calling plans (expensive) but as it stands I just let the money accumulate in Venmo. And to wire money overseas you also need a US based cell phone, if you deal with Bank of America (luckily I have a business account with Citibank, which is superior for international wires, they give you a key fob password generator, but Citibank business, which closes on weekends--honest-- has a terrible interface, like a text based on from the 1960s that does not allow you to see current transactions, it's comical, though they made it slightly better recently). In short, even largely bankrupt Greek banks are more electronically savvy than primitive US banks (SunTrust bank is one of the worse, don't even get me started).

It can't move your money that fast, except within a single bank where it's a simple database update. ACH takes three days, longer for international, and there are anti-money laundering checks that can make it take longer.

Nobody is ignorant enough to believe that all financial data exists in digital form.

They live in a special bubble in silicon valley.

I am acquainted with a man who does small business taxes in a mid-sized city. The majority still come in to his office with a box stuffed full of unsorted bills, invoices, bank statements and papers. Then they say, "I'm think I actually forgot to even file my taxes last year..." and he knows it is going to be a very long day. That happens over and over and over.

Reason had a nice article. Notice how doctors, nurses, engineers, techies, textile workers and other labor with real, hard skills came to save the day. Where are all the investment bankers, private equity partners, hedge fund traders, and management consultants that society richly rewards when times are good now that times are bad? In a time of crisis, a can of beans is worth more than a bean counter.

Around here people have coded something similar to kickstarter. You pay some money today in exchange for the future delivery of a good or a service.

The difference is that all the businesses listed on the platform already exist but are closed due to the virus restrictions: the restaurant, the hairdresser, the bar, gift shops, etc. If you have no idea what to buy, you just send money and get a virtual gift card to spend later. Money keeps flowing and small business stay alive. The contribution of the "government" to this thing is limited to enforcing the contracts at a later date.

Thinking and coding are not exotic skills that only the savants at Silicon Valley master, average people can do it too.

PS. Coders like to code, therefore you cannot blindly trust in their advice them because the solution is always more code.

Joe the Plumber can sell today future services through a crowdfunding platform. kickstarter, indiegogo or similars are ready to make the money flow from consumers to small business.

Andressen Horowitz is asking for sweet government money to write a few million lines of code to "improve" loan delivery instead of endorsing existing solutions that avoid the necessity of giving loans to small business.

Your idea works in some scenarios but doesn't address demand destruction in the face of layoffs and mass unemployment. A small business on Kickstarter will raise not nearly enough if all of its customers are broke and/or hoarding cash. The loans from the SBA are conditioned on keeping workers on the company payroll. Sellers need buyers.

There's a reason why coding skills are paid as much as they are even with a globally accessible workforce (is there a better job for telecommuting?). If the supply of people who could do it were as large as you think, the wages would be much, much lower.

I pre-ordered beers at my favorite bar last week. Cash is flowing.

What matters are the small shops, not the income of coders.

Goldman is predicting a 33% unemployment rate.

No one is going to have any cash to buy future services. Those businesses won’t exist anyways since they can’t pay the lease and won’t have any employees. They’ll all be bankrupt....

...?

I understand the most significant data for getting a loan is payroll data, in particular 2019 payroll data (which means start-ups won't qualify). My fear is that the SBA will follow past practices and seek collateral. SBA loans are well-known for causing both business and personal bankruptcy, including the loss of one's home that was required collateral. As pointed out in the post, these loans are intended to be forgiven, so demanding collateral makes no sense. Of course, the president can order the SBA not to demand collateral and to accelerate the process. But one has to ask whether Trump actually supports the program?

The Paycheck Protection Program is generous. No collateral or personal guarantees required. Automatic six month deferred payments. Loan maximum is up to 2 months of payroll capped at $10 million. Funds are fully forgiven if used for the cases they list mostly related to paying employees:

https://home.treasury.gov/system/files/136/PPP%20--%20Overview.pdf

More here:

https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

Even better is the hidden grant in the Economic Injury Disaster Loan (EIDL) loan program where small businesses receive a $10,000 grant in 3 days even if they are denied an EIDL loan! Of course, those funds can only be used for business necessities like rent or payroll that the grantee agrees to under penalty of perjury.

https://www.texasmha.com/news/featured/economic-injury-disaster-loan-with-new-emergency-grant-of-10k

https://www.newsmax.com/us/pandemic-elderly-fatalities-colorado/2020/03/31/id/960837/

The tournament was held Colorado Springs Bridge Center in Colorado Springs, Colorado, on Feb. 29. More than 20 of the 150 players at the two-day tournament have been hospitalized, per the report.
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There is our spread rate. 15% per day spent in a casino with one spreader. This is a high number, one unprotected infection at the factory and you will shut down in a week as the virus cases become apparent.

New York was mass transiting people for days before discovery. The typical commuter spent about four hours in transit over the period, and their infection rate is likely 15% or a bit above. Phase two spreading.

"This is a high number, one unprotected infection at the factory and you will shut down in a week as the virus cases become apparent."

Automated American factories have relatively low density during normal production. If you keep the congregation in the break room /locker room and cancel pointless meetings, the spread rate would be very low.

"keep the congregation in the break room /locker room to a minimum"

"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."
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Ditto that fr most of finance, the easiest industry to automate. Much of the new code reduction is driven by Moore's Law, but the majority of financial code reduction is automating paper work by carrying variables all the way through the process in a standard form.

"is automating paper work by carrying variables all the way through the process in a standard form."

That's probably true of healthcare also.

There are no “simple solutions” in a field as regulated as finance. Fintech is based on the idea that the problem is the paperwork, when really it’s the reason the paperwork exists.

This is the correct answer. Yes, there are arguments against over-regulation, but we know that under-regulation can lead to the Great Depression, the 2008 crisis and moral hazard via bailouts.

https://thehill.com/policy/healthcare/public-global-health/490532-chinese-scientists-find-several-extremely-effective

Chinese scientists say they have found “extremely effective” antibodies in their search for drugs to treat and prevent the novel coronavirus.

Zhang Linqi at Beijing’s Tsinghua University told Reuters that his team has found antibodies that effectively block the virus from entering human cells. Those antibodies could be used in drugs to more efficiently treat COVID-19, which currently has no proven treatment.

Zhang said his team began collecting blood samples from recovered patients in early January and isolated 206 monoclonal antibodies with a “strong” ability to connect with the virus’s proteins. He added that four were found in another test to prevent the virus from entering human cells, and two were “exceedingly good” at it.

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Sep one i finding a vaccine. Step two is to find the virus gene sequence which triggers just those anti-bodies. Step three is to render a process that kills the virus, except for those triggering sequences.

https://www.newyorker.com/news/postscript/the-life-and-death-of-juan-sanabria-one-of-new-york-citys-first-coronavirus-victims

The Life and Death of Juan Sanabria, One of New York City’s First Coronavirus Victims
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Early spreader, a doorman. His mom was sick with another condition and he spent hours in ER waiting for mom to be treated, a few times. He got ill four weeks ago.

The ER was the first spreader, the phase one, in NY, I am certain. His infection resembles the folks who spent one day in the bridge tournament and 15% got the thing, a phase two event. This victim spent time back on the job, as doorman, after being exposed.

Are you under the impression that this is your personal stream-of-consciousness blog?

HAHAHA ! Brazil,,,, the movie
https://www.youtube.com/watch?v=7xNnRBksvOU
Tyler should speak with his accountant friends about this.
I work as a CPA and am involved with assisting clients getting all this together. The amount of nuances involved is extraordinary. Even is supposed technologically integrated systems it is a lot of work dealing with the 'exceptions'.
Yes it better than it has been and should be better.
. the word "should" = a fine blame mess
SMALL STEPS TO A BETTER WORLD

meanwhile
in our current toxic airborne event this Gerald Howard
fella gotta lotta good points about the great Don Delillo

https://www.bookforum.com/print/2701/why-don-delillo-deserves-the-nobel-23926

Good. I concur with him. DeLillo is thoroughly worthy. But remember that the committee is quite politicized. They have preferred to look past white heterosexual older English speaking men. Remember the obscure Austrian feminist who won a few years ago?

mebbe e don could self identify as zer donna and talk in Italian?
after lunch we gonna break into the locked up library and steal/reread underworld

Coronavirus might be resistant to heat according to an article at the Journal of the American Medical Association

Possible Transmission of Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2) in a Public Bath Center

https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2763473?utm_source=For_The_Media&utm_medium=referral&utm_campaign=ftm_links&utm_term=033020

I've spent much of my career buying small businesses and as such I've frequently competed against buyers financed by SBA loans arranged by business brokers. In that context I've never seen an SBA loan that wasn't pretty much a scam.

The total number of cases in the central San Joaquin Valley — Fresno, Kings, Madera, Merced and Tulare counties — has reached 150 cases in less than a month and continues to rise daily.
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I am seeing rises a bit higher than 15% daily. This matches the bridge game with 6.5 million players attending. But the games stopped a week ago and we are measuring a week late. The remission rate, so far, as left three times as many immune as still infectious, according to release records. Testing is done among those showing some symptoms plus private testing, not random. R0 around here is going to be much lower than NYC, a packed mass of 8 million.

> 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.

LOL. Reminds me of the engineers who say they could build Uber in a weekend

Let silicon valley write 200 lines of code and deregulate nursing licenses. Libertarians really putting their best solutions forward these days. Meanwhile look at the countries that have had success containing their local epidemics, not exactly letting the market sort it out.

Direct mailing lists are brokers who serve customers in a direct response marketing way. The mailing list works directly behind the success of any of our work. One of the most popular profits in the industry is because of the direct mailing list that works directly.

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