◼ FINANCE Bloomberg Businessweek October 12, 202027swappedtipsaboutwhichlendershadtheeasiest
applicationprocessesandwhichweretakingon
newclients.Borrowerstalkedaboutonlinelend-
ersapprovingtheirloansinaslittleasanhour.
OnewhoseapplicationwasprocessedbyBlueVine
receivedSBAapprovalsofastthepersonwondered
if somethinghadgonewrong.
A representativeforBlueVinesaysthattheser-
vicerrejectedasmanyas9%oftheapplicationsit
receivedbecauseofsuspectedfraudandthatfewer
than2%oftheloansreceivingfundinghaveraised
concerns.BlueVine“conductedadvancedfraud-
preventiontechniques”andtriedto“safelysupport”
asmanybusinessownersasit could.That“included
takingona potentiallylargerriskoffraud”than
facedbylendersprioritizingonlyexistingcustom-
ers,a spokespersonsaysinresponsetoquestions.
TheSBAdeclinedtocomment,whilea spokesper-
sonfromtheofficeoftheinspectorgeneralforthe
agencycalledthetilttowardfintech“unsurprising.”RepresentativesforCrossRiverBankandCelticBank
didn’trespondtomultiplerequestsforcomment.
Normally,firmsattemptingtoautomateunder-
writingareonthehookforlosses.Butbecausethe
loansare100%guaranteedbytheSBA,taxpayers
couldbearthecostforfraudulentloans.“TheSBA
said,‘Wewantthisthingtobeoutthere,andaslong
astheystickwiththeforms,we’renotholdingthe
lendersorthebanksaccountable,’” saysWendyCai-
Lee,chiefexecutiveofficerofPiermontBankinNew
York.ThePPPwasthe“perfectprogram”forfin-
techs,shesays.“Itwasaboutvolumeandgettingit
doneina veryshortperiodoftime,whereit could
beformulaic.”�MichelleF.DavisTHE BOTTOM LINE The federal program to help small businesses
survive the pandemic was under pressure to get money out fast,
and it turned to online lenders. Scammers tried to game that.accusedofwrongdoing.TheU.S.letthemrely
onself-certifications by applicants attesting that
they were eligible for the loans. A spokesperson
for Ready Capital says it “implemented due dili-
gence measures and complied with SBA directives
to expeditiously provide relief to small businesses.”
Kabbage and BlueVine also say they took steps to
scrutinize applications.
But the need for speed may have had unintended
consequences. “The fraud checks didn’t really occur
upfront,” says Bill Phelan, senior vice president at
PayNet, a unit of Equifax Inc. that helps lenders assess
the risk of business loans. “The impetus was to get
the money out the door and help businesses survive.”
Bloomberg examined hundreds of pages of fil-
ings and cross-referenced them with public records
to identify the lenders involved in the criminal
cases. The analysis focused on instances in which
loans had been funded or approved and the type
of lender could be identified.
The cases brought by the Justice Department rep-
resent about $175 million in alleged fraud, which is a
small fraction of the $525 billion in loans approved
through one of the biggest government relief pro-
grams in history. But PayNet says that among loans
for $150,000 or more, about $20 billion worth—or
up to 5%—raise some red flags.
At the start of the PPP, run jointly by the Department
of theTreasuryandtheSmallBusinessAdministration,
manyofthelargestbanksprioritizedexistingcus-
tomerstoavoidfraudormoney-laundering risk. That
left small businesses without a banking relationship
scrambling to get money before it ran out.
Emissaries from the fintech sector appealed to
authorities, saying they could reach vulnerable busi-
nesses. They got the green light on April 14, by which
point almost two-thirds of the first round of $349 bil-
lion in funding had been allocated. Lawmakers later
made an additional $320 billion available. Fintechs
dominated that second round, which ended in
August. Kabbage, which had never before processed
an SBA loan, surpassed megabanks to become the
second-biggest PPP lender by application volume,
approving funds for almost 300,000 businesses.
More than 75% of applications that flowed through
Kabbage were approved “without human interven-
tion or manual review,” according to a report from
the company. The median approval time: four hours.
A Kabbage spokesperson says data and tech-
nology allowed it to conduct “rigorous verification
checks” that “go well beyond the minimum require-
ments issued by the SBA.” Kabbage conducts addi-
tional verification analyses after loans are approved
but before they’re disbursed.
*LOANS AS OF AUG.All over the internet, anxious business owners
†APPROVED LOANS WHERE LENDER COULD BE IDENTIFIED. DATA: DEPARTMENT OF JUSTICE, SMALL BUSINESS ADMINISTRATION. ILLUSTRATION BY BAPTISTE VIROT
▼ Share of Paycheck
Protection Program
loans handled by a
fintech*
Allapprovedloans15%Loans under scrutiny for
fraud by the borrower†75%