SCOTTSDALE, Ariz.–Two start-up companies reaped billions of dollars in fees by processing one third of all Paycheck Protection Programs this year, according to a new analysis.
The small companies, Blueacorn and Womply, processed loans for smaller borrowers that many of the big lenders didn’t serve, according to the New York Times.
“(The) 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,” the Times reported. “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.”
The Times found Blueacorn didn’t exist before the pandemic, while the other, Womply, was founded a decade ago and sold marketing software.
‘Breakout Stars’
“But this year, they became the breakout stars of the Paycheck Protection Program…Between them, the two companies processed a third of all PPP loans made this year,” the Times said its analysis found.
According to the Times, Blueacorn and Womply 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 encouraging 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.”
Barry Calhoun, the chief executive of Blueacorn, told the Times the company was founded last year solely to help companies obtain PPP loans. “Millions of businesses were being left out,” he said. “Tiny businesses, self-employed individuals and minority communities are left out in the cold, over and over and over. Addressing that is a core mission for us.”
Big Banks Weren’t Interested
The Times noted that when it came to the PPP, which was created in April of 2020, the national and regional lenders primarily focused on established businesses that needed larger loans, because they were easier to make and more lucrative. The program’s largest lender, JPMorgan Chase, refused to even make loans of less than $1,000, the report added.
“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,” the Times reported. “Suddenly, there was a lot of money to be made — if only someone could get businesses in the door.”
The report cited advertising from Blueacorn on Facebook that read, “Literally free money for those who qualify.” Womply adorned billboards and New York City buses with the message, “Get up to $50,000 in PPP. Apply now!”
Loans Below $17,000
According to the Times’ analysis, from late February to May 31, 2021, 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.
“In December, Congress said that banks making Paycheck Protection Program loans below $50,000 would be paid 50% of the loan’s value, up to a maximum of $2,500,” the Times pointed out. “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.”
Following the program change, both Blueacorn and Womply a “light-bulb moment,” the Times reported, when a group of entrepreneurial coders who founded Blueacorn decided to build a system to simplify the paperwork, betting that it would encourage more lenders to make loans to the smallest businesses. San Francisco-based Womply had a similar idea.
Clients Were Being Denied
Womply provides restaurants, retailers and other small enterprises with tools to manage their customer lists, marketing campaigns and payments. The company’s CEO said he 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 businesses and they said no,” the CEO told the Times. “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.’”
As a result, in February Womply started a web-based interface called Fast Lane 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, the Times reported.
Blueacorn worked with just two lenders: Prestamos CDFI, a nonprofit lender, and a small mortgage lender called Capital Plus Financial. According to the analysis, 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.
Womply teamed with 17 lenders and processed 1.4 million loans, totaling more than $20 billion — about 7% of the total PPP money given out this year, the Times said.
‘Unexpected Tailwind’
“Also in late February, Blueacorn and Womply got an unexpected tailwind from a major rule change by the Small Business Administration, which oversaw the loan program,” the Times reported. “Concerned that women and minority-led businesses were being disproportionately left out, the Biden administration overhauled the loan formula to award sole proprietors — a group that includes contractors and gig workers — loans based on their reported revenue rather than profit. Overnight, millions more qualified for help. Drawn in by the marketing campaigns, they stampeded toward the two companies.”
Blueacorn said it was “overrun with demand,” and in one a 24-hour period went from 15,000 new customer service tickets to 27,000.
Blueacorn rented call centers and trained hundreds of temporary workers to troubleshoot. Womply redeployed nearly all of its 200 employees to work on loan issues.
‘Billions in Fees’
The Times reported that through its two partners, Blueacorn will take in at least $1 billion this year on the loans it processed, while Womply is likely to take in fees of $1.7 billion to $3 billion, according to a Times analysis.