Hundreds of millions of small businesses require immediate financial relief through government funding in order to stay afloat—and keep economies functioning. But traditional financial institutions and current infrastructure cannot support the sheer volume, scale, security, and timeline of the necessary loans. That is why Canadian and U.S. governments should look to innovative fintech companies to deploy emergency funds quicker.
After President Trump signed the $2 trillion CARES Act, the Small Business Administration (SBA) Administrator Carranza and Treasury Secretary Mnuchin announced a mobilization effort of banks and lenders to supply U.S. small businesses with capital. Canada also announced official funding plans for SMBs on March 27, 2020.
“Small businesses are the backbone of our economy and an important source of good jobs across this country,” Canadian Prime Minister Justin Trudeau said in his statement. “They are facing economic hardship and uncertainty during the COVID-19 pandemic, and that is why we are taking action now to help them get the financial help they need to protect their workers and pay their bills.”
However, there is a snag in the COVID-19 financial response plans for small businesses in both countries. The scale and timeline of the demand for assistance to keep SMEs afloat are greater and more serious, according to Finance Canada’s top concerns, than that which traditional financial services can currently meet.
Meeting the scale and timeline of SMEs relief loans
In an open letter to the Government of Canada, the Canadian Lenders Association (CLA) asked to extend the proposed economic stimulus package for small businesses to include financial technology (fintech) lending options. While the fintech community, of which VoPay is a proud member, stands prepared to offer digital lending services, a few steps must also be considered.
In the FDATA COVID-19 letter to Finance Canada and the Minister of Innovation, Science and Industry, they state the need to formally recognize the essential role that fintech companies can play to deliver financial services. The association explained that tens of thousands of truly small businesses (MSMBs) in Canada, such as restaurants, auto repair, and retail shops, may not be adequately served for three reasons:
- These businesses don’t meet traditional financial institutions’ credit requirements
- Loan amounts by these businesses are relatively small, making them lower priority
- The volume of time-sensitive credit requests may overwhelm traditional financial services
How fintechs can support COVID-19 SMB relief funding
In a recent FDATA statement, Fintech Lending to Small Businesses During COVID-19 Response, the association aimed to encourage Canada’s financial institutions to enable their customers to gain access and control over their own financial data. Unfortunately, as we discussed in our post, Healthy Competition Among The Einsteins And Edisons Of Fintech, some financial institutions have taken actions to limit access to essential data that powers digital tools.
If consumers (and business owners alike) had access to their own financial data, they could continue to use third-party fintech tools to help them manage their money and financial wellness remotely. The choice would be in the hands of small business owners and consumers over who gets access to their data—and what they use it for.
Learn more about the benefits of Open Banking wherein consumers would have control over who uses their financial data and for what purposes.
The same goes for accessing capital in this time of need. Current financial infrastructure does not have the bandwidth or capacity, according to FDATA, to adequately service the financial needs of small businesses in this crisis. It is time to turn to fintech lending for additional support. Many of these institutions have already turned to innovative, secure fintech companies for mutually-beneficial partnerships.
Scale, timeline, and security have thus become unnecessary blockers for moving forward. Innovative fintech companies, VoPay included as a secure payment solution built for lenders, have long since overcome those challenges. VoPay offers real-time funding through bulk e-transfers and reduces withdrawal NSFs and returns through next-generation, tokenized EFT/ACH.