PPP. Paycheck Protection Program.  It saved many a small business from extinction last year.  Our firm was entitled to obtain one- but we weren’t going to go extinct without it.  But, I can guarantee that some of our clients would- how do you think a boutique shop at the airport would survive when we all stopped flying for a year?  Or, a physical fitness (for kids) system would do when we all stayed away from gyms?  Even a consulting firm who’s business was entirely overseas- and could no longer visit its clients?  Not to mention the myriad of hospitality firms (hotels, restaurants) that were forced to close.

So, we grabbed those loans from anyplace we could.  We got ours from our bank– which was among the last to join the program.  (I should add it was among the last to let us file for forgiveness, too!)  Our clients got their loans from their banks, some from places like Fundbox (which was in cahoots with a financial program we use to monitor their KPI), still others from Paypal.

Given the reluctance of banks to join the program (since they thought the fees too low, but more usually that the loan request was too damned small for them to consider), and the dearth of community banks participating, many of those firms catering to the poor, the disadvantaged, or in minority areas missed out on the first batch of PPP loans.

By the time the second tranche rolled out (in 2021), two new program entrants were around.  BlueAcorn (founded in April 2020) and Womply (founded in 2011).  And, this new program let solopreneurs take a bite of the apple (using their Schedule C from their 1040 submissions).  These two entities managed to deliver about 1/3 of the PPP loans in 2021. (Note that BlueAcorn wasn’t even a year old!)   Interestingly neither of these two entities are banks- so they can’t really loan small businesses any money.

Nope.  They acted as middlemen.  Knowing that the new program’s higher fees for smaller loans would make them very rich.  Because Congress gave these entities some 50% of the loan value (if the loan were $ 50K or less), up to $ 2500.  Prior to this new rule from Congress, the percentage was 5%, which meant that a $ 5K loan in 2020 earned the processors all of $ 250; in 2021, the processing fee was worth $ 2500.

Now, you know why most of the 2021 loans were for much smaller balances than 2020- because folks like BlueAcorn and Womply recognized the gold mine they proffered.  That’s why the number of loans under $5K mushroomed from 3.6 million in 2020 to 5.8 by 2021.

Womply’s website (Fast Lane) was geared to loans of $ 50K or less.  Once the documents were uploaded, they marketed the loan to one of 17 partners, who only had to submit the paperwork to the SBA (that Womply certified as complete) and fund the loan.  That let these banks process some 1.4 million loans worth some $ 20 billion (about 7% of the entire PPP portfolio).   Womply expects to rake in at least $ 1.7 billion in fees this year (but it could go as high as $ 3 billion- the problem is there is a dispute about Womply’s promise of a sliding scale [down from 80% of the lender fee], but Womply claims that downward slide only applied to larger loans, of which it processed virtually none.)

BlueAcorn just had two partners- Prestamos CDFI (non-profit entity) and Capital Plus Financial.  Prestamos went from issuing less than 1000 PPP loans (total value of $ 27 million) in 2020 to almost 500,000 loans in 2021- with a total portfolio value of $ 7.7 billion!  It may explain how Prestamos augmented its earning from $ 1.3 million to $ 1.2 billion on loans from 2020 to 2021.   But, those figures may not be totally accurate since  BlueAcorn is due a significant portion of the $1.2 billion for preparing all those loan documents.   Capital Plus didn’t fare too badly either- by making almost 475,000 PPP loans (total value $ 7.7 billion), it accrued $ 464 million, of which some $300+ million was turned over to BlueAcorn.

Maybe the banks should have been smarter?

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