License to lend

The Biden administration's efforts to help small business owners get better access to capital could open up a big opportunity for fintech lenders.

Fintechs could get a bigger piece of the SBA-backed loan market. The Small Business Administration will soon propose a rule change that could lift a 40-year moratorium on new licenses for nonbanks to lend through its largest loan program.

• The number of nonbanks, such as fintechs, that can offer SBA-backed loans through the roughly $35 billion annual 7(a) program has been capped at 14 since 1982. That has restricted most lending to banks (which occasionally partner with fintechs and other nonbanks on sourcing the loans).
• But the Biden administration is hoping that lifting the cap can make the loans more accessible, "particularly in smaller-dollar and underserved markets, where borrowers are most acutely shut out of” lending, as Vice President Kamala Harris said in a list of policy initiatives aimed at advancing racial equity in small business ownership, published Oct. 4.
• The 7(a) loans — available for up to $5 million and backed up to 85% by the SBA — are designed to serve business owners who struggle to get other types of financing, but data shows longstanding disparities in the loans based on race and income.

Fintechs believe they can help. When the firms were able to write SBA-backed Paycheck Protection Program loans, an analysis by the Federal Reserve Bank of New York found that fintech lenders "likely served borrowers who would not have received loans otherwise," often because they lacked existing banking relationships.

• "The fintech industry is often serving minority-owned, low-to-moderate income, and the smallest of small businesses," said Ryan Metcalf, head of public policy and social impact at online lender Funding Circle. "That's the population the SBA is struggling to reach through banks."
• Sens. Tim Scott and John Hickenlooper last year proposed a bill to lift the moratorium on new SBA lending licenses, which was supported by think tanks such as Bipartisan Policy Center.
• "If we're serious about expanding access to capital for those business owners and entrepreneurs who have historically lacked such access — and that is part of the original purpose for SBA funding support programs — then we should widen the scope of who's able to participate," said Dane Stangler, director of strategic initiatives at BPC.

This could be a long process. No rule has been proposed yet, and an SBA spokesperson declined to comment on when to expect one. While fintech companies were credited with helping more businesses access PPP loans, researchers found that some of those fintechs were responsible for a significant share of fraudulent loans. That could weigh on the decision to allow further expansion of SBA-backed loans to nonbank lenders. Stangler said the rules should be carefully crafted, but the change must be considered "if our goal is to expand access to capital."

— Ryan Deffenbaugh (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

A MESSAGE FROM FIREBLOCKS

Today’s cross-border payment infrastructure is slow, expensive, and inefficient. But digital assets have the ability to make delayed settlement times and high transaction fees a thing of the past.

Learn more

On the money

Sen. Elizabeth Warren has some questions about Texas crypto mining. Warren is leading a group of Democratic lawmakers that’s pressing Texas officials for details on how cryptocurrency miners may be straining the state’s power grid.

Betterment has launched a crypto product. The company has partnered with Gemini to allow its customers to invest in four crypto portfolio options.

Legislation to lower credit card swipe fees is off the table for now. Sens. Dick Durbin and Roger Marshall have backed off of an effort to slip the Credit Card Competition Act into the National Defense Authorization Act.

Is the metaverse a lonely place?Data suggests two top metaverse platforms have fewer than 1,000 "daily active" users, though the companies say the numbers don’t tell the whole story.

Overheard

Is this the future of love in the metaverse? CoinShares Chief Strategy Officer Meltem Demirors, weighing in on romance drama from an episode of podcast “The Aubservation,” has some harsh words for people who don’t appreciate the lovely gift of a lewd JPEG. “If you sell NFTs your significant other gifted you, much less dickbutts, you are an animal,” she tweeted.

Ever wonder why so many VCs (and entrepreneurs, for that matter) on Twitter sound the same? According to a recent Business Insider report, they’re all using ghostwriters. Better Tomorrow Ventures partner Sheel Mohnotshared sample tweets one ghostwriter offered him, and they’re pretty cringe. “For the record I write all of my own stupid tweets and always will,” Mohnot assured his followers.

Federal Reserve vice chair for supervision Michael Barr issued a stark warning for banks accepting deposits from crypto companies on Wednesday. “The recent volatility in crypto markets has demonstrated the extent of centralization and interconnectedness among crypto-asset companies, which contributes to amplified stress,” he said in a speech at D.C. Fintech Week. “While banks were not directly exposed to losses from these events, these episodes have highlighted potential risks for banking organizations.”

Moves

Usman Naeem is global head of derivative sales and agency trading at Coinbase. Naeem left a role as managing director of Goldman Sachs to join Coinbase's push into derivatives.

Adam Swiecicki is stepping down as Brex's CFO to join Rippling, TechCrunch reported. Brex recently laid off 11% of staff, while Rippling has launched a competing corporate card service.

Brandon Ramirez is the interim CEO of Edge & Node. Ramirez, a cofounder of the DeFi software development company, takes over for Yaniv Tal, who is launching a new company within The Graph protocol.

Stephanie Palmeri is a partner at NextView Ventures.Palmeri is a founding member of All Raise and former partner at Uncork. NextView also announced it has closed two funds totaling $200 million.

A MESSAGE FROM FIREBLOCKS

Today’s cross-border payment infrastructure is slow, expensive, and inefficient. But digital assets have the ability to make delayed settlement times and high transaction fees a thing of the past.

Learn more