How two startups reaped billions in fees on small-business relief loans

By Stacy Cowley and Ella Koeze

Although Congress approved billions in aid for small compa-nies to help them keep paying their employees during the pandemic, there was a big problem: It wasn’t reaching the tiniest and neediest businesses.

Then two small companies came out of nowhere and — through an astute mix of technology and advertising, and the dogged pursuit of an opportunity that big banks missed — found a way to help those businesses. They also helped themselves. For their work, the companies stand to collect more than $3 billion in fees, according to a New York Times analysis — far more than any of the 5,200 participating lenders.

One of the companies, Blueacorn, didn’t exist before the pandemic. The other, Womply, founded a decade ago, sold mar-keting software. But this year, they became the breakout stars of the Paycheck Protection Program, the government’s $800 billion relief effort for small businesses. Between them, the two compa-nies processed a third of all PPP loans made this year, the Times analysis found.

Blueacorn and Womply aren’t banks, so they couldn’t ac-tually lend any money. Rather, they acted as middlemen, charging into a gap between what big banks wouldn’t do and what small banks couldn’t do. First, they unleashed marketing blitzes encou-raging freelancers, gig workers, sole proprietors and other small merchants to apply for loans through their websites. Next, they directed those applications to lenders. In return, they took a hefty cut of the fees that lenders made on each loan.

“Millions of businesses were being left out,” said Barry Calhoun, CEO of Blueacorn, which was founded last year solely to help companies obtain PPP loans. “Tiny businesses, self-em-ployed individuals and minority communities are left out in the cold, over and over and over. Addressing that is a core mission for us.”

When the government started the PPP in April 2020, it quickly found that banks, from national giants to regional players, gravitated to bigger loans to more established businesses because they were easier to make and more lucrative. The program’s lar-gest lender, JPMorgan Chase, refused to even make loans of less than $1,000.

To encourage banks to lend to smaller businesses, Congress in December raised the fees for small loans. And in February, the government tweaked the program’s rules so that unprofitable solo businesses, which had previously been ineligible, could get loans. Suddenly, there was a lot of money to be made — if only someo-ne could get businesses in the door.

“Literally free money for those who qualify,” a Blueacorn advertisement on Facebook read. Womply banners adorned bill-boards and New York City buses. “Get up to $50,000 in PPP,” read one. “Apply now!”

Those appeals were wildly successful. From late February to May 31, when the program ended, the companies processed 2.3 million loans. Most were for less than $17,000, and the vast majority went to solo ventures, which are more likely to be run by women and people of color.

All that hustle had downsides, including widespread cus-tomer-service failures. And some lenders now have regrets about signing rushed deals that delivered most of the profit to their part-ners.

A lightbulb moment

In December, Congress said that banks making PPP loans below $50,000 would be paid 50% of the loan’s value, up to a maximum of $2,500. (Earlier, the maximum a lender could earn was 5% of a loan’s value.) So a $5,000 loan that previously made the lender $250 was now worth 10 times more. By making small-dollar loans more profitable for lenders, Congress was hoping to help the neediest.

But reaching out to borrowers and collecting their pa-perwork were still challenging — or, for Blueacorn and Womply, a lightbulb moment.

Blueacorn, based in Scottsdale, Arizona, was founded in April 2020 to help small businesses find PPP lenders. After Con-gress made the fee change, the group of entrepreneurial coders who founded the startup decided to build a system to simplify the paperwork, betting that it would encourage more lenders to make loans to the smallest businesses.

In San Francisco, Womply CEO Toby Scammell had a si-milar idea. Founded in 2011 by Scammell and backed by venture capitalists, Womply provides restaurants, retailers and other small enterprises with tools to manage their customer lists, marketing campaigns and payments. Scammell had earlier discovered that banks didn’t want to bother with PPP loans for many of Womply’s clients.“We tried to convince lenders to serve the smallest busines-

ses and they said no,” Scammell said in an interview last month. “I just couldn’t get them to do it. I finally got fed up and said, ‘Here, we can hand it to you on a silver platter.’”

So in late February, Womply started Fast Lane, a web-ba-sed interface through which borrowers could apply for PPP loans of up to $50,000. Womply gathered their information, handled borrowers’ questions, ran fraud and identity checks and bundled the loan documents into a package that it steered to one of its partner lenders. All the lender would have to do, Womply said, was submit the paperwork to the government and fund the loan.

A big impact

When Blueacorn and Womply started their systems in late February, the volume of PPP lending shot up. Largely because of the two companies’ efforts, lenders made 5.8 million loans of $50,000 or less this year, up from 3.6 million in 2020. The program’s average loan size dropped from just over $100,000 last year to $41,560 this year. And the six most active lenders this year each partnered with Blueacorn or Womply, or both.

Blueacorn worked with just two lenders: Prestamos CDFI, a nonprofit lender, and a small mortgage lender called Capital Plus Financial. Last year, Prestamos made 935 PPP loans totaling $27 million. This year, working with Blueacorn, it made 494,415 loans — more than any other lender — for a total of $7.7 billion.

“What we did together is absolutely incredible,” said David Adame, CEO of Chicanos Por La Causa, parent organization of Prestamos. “The myth that you can’t serve communities of color, or underserved communities, with a technology model, at scale — we’ve blown that away.”

Womply’s effect was even broader. It teamed with 17 len-ders and processed 1.4 million loans, totaling more than $20 bi-llion — about 7% of the total PPP money given out this year. “It was an amazing team effort,” said Adam Seery, managing director of Harvest Small Business Finance, Womply’s largest lender.

By early March, “we were overrun with demand,” said Blueacorn’s Calhoun, a private-equity veteran who joined the company that month to help manage its growth. “We had a 24-hour period where we went from 15,000 new customer-service tickets to 27,000,” he recalled. “Those are Amazon-like levels.”

Blueacorn rented call centers and trained hundreds of tem-porary workers to troubleshoot. Womply redeployed nearly all of its 200 employees to work on loan issues. Both companies still struggled to keep up. On Reddit groups and social media sites, thousands of borrowers complained about delays, poor commu-nication and problems resolving errors.

Others had a smoother run. Dan Bourque, an Uber driver in San Francisco, saw Womply’s ads and applied for a loan in mid-April. Seventeen days later, he had a $10,477 deposit — fun-ded by Fountainhead SBF, another of Womply’s partner lenders — in his bank account. For that loan, the process “was flawless,” he said.

The money pours in

The millions of tiny loans the two tech companies enabled, coupled with Congress’ decision to make small loans more lucra-tive, led to gigantic payouts for small lenders. Last year, Prestamos made $1.3 million for its lending. This year, it will collect nearly $1.2 billion, according to a New York Times calculation of len-ders’ fees based on government data.

But because of the deals they struck with Blueacorn and Womply, the lenders will keep only a fraction of their earnings. Blueacorn will get a “significant” portion of the $1.2 billion that Prestamos is collecting, said José Martinez, the lender’s president. He declined to disclose the deal’s terms, but said they were “fair and aligned” with each partner’s contribution.

Womply is locked in fee disputes with some of its partners. At least three lenders signed deals that they believed would ope-rate on a sliding scale, where they would owe Womply the top rate — 80% of the lender fee — only on loans above a certain volume threshold. But when it came time to collect, Womply told two of them that it believed it was owed its top rate on every loan it had processed.

Two lenders said they would never work with Womply again. “At those rates, I’m in the hole and losing money on many of these loans,” said one lender, who asked for anonymity becau-se Womply’s loan contract prohibits lenders from disclosing its terms. “It’s disturbing and disgusting.”

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