NEW YORK – Some small businesses forced to turn to online lenders for pandemic relief are making those niche players a bigger part of their financial game plan, and are even considering dumping their traditional banks altogether.
Loans from online lenders saved thousands of small business owners who were unable to get COVID-19 relief loans from big traditional lenders. Now, encouraged by getting applications processed within days rather than weeks, these owners are becoming repeat customers.
Patrick Carver was loyal to his big national bank but became disillusioned after applying for a Paycheck Protection Program loan, not getting a response for over a month and then having his application denied. At the suggestion of a friend, Carver tried an online lender — his application was approved in four days and he had the money within a week. If he needs another loan, he’ll start with the internet.
“Anything related to my business that requires swift action, I’ll likely go with one of these companies that’s built for speed,” says Carver, owner of Atlanta-based Constellation Marketing.
The recently ended Paycheck Protection Program gave out more than 11 million loans worth over $788 billion. Banks were overwhelmed by more applications than they were used to handling, and many larger applicants got their loans processed ahead of smaller businesses.
Some small companies with established banking relationships were rejected because they didn’t have the right mix of accounts. Others never heard back or were turned down without explanation. Many desperate for cash then turned to small banks or online lenders whose target customers are small businesses.
Online and other state-regulated lenders handled nearly 251,000 PPP loans totaling more than $6 billion in 2020, according to the Small Business Administration, which approved the loans. In the 2021 round of lending, which ended May 4, those companies made more than 1 million loans totaling nearly $21 billion. Those dollar amounts accounted for only about 1% of the program’s money, but it was cash many businesses couldn’t get elsewhere.
Ahmande Grimes is considering a complete move to online banking, not just for borrowing. He had considered an online loan before the pandemic, but believed at that point that traditional banks were the best route.