(Bloomberg) — Financial-technology firms PayPal Holdings Inc., Square Inc. and Intuit Inc. are starting to lend to small businesses that couldn’t get access to coronavirus relief funds through the biggest U.S. banks.

Fintechs had been pushing to provide emergency loans to small businesses since mid-March, more than a week before passage of federal legislation that created the Paycheck Protection Program. The companies have said that they can approve loans faster than traditional banks and reach the most vulnerable businesses but ran into obstacles before getting Small Business Administration approval.

“The PPP program has manual checks and processes that require time, and we’re doing the best we can despite having tech that can operate at scale and efficiency,” said Brian Peters, executive director of Financial Innovation Now, an industry group that counts PayPal and Square as members. Fintechs have had to “retool their lending programs to make PPP work.”

PayPal Chief Executive Officer Dan Schulman was on calls with the Treasury Department for weeks prior to getting PPP approval Friday, including speaking directly with Treasury Secretary Steven Mnuchin, according to a company representative. They discussed PayPal’s capacity and capabilities to get funds in a timely manner to small and midsize businesses, particularly those from disadvantaged areas or demographics.

One reason it took fintechs longer than traditional banks to participate in the PPP was that they had to wait on final authorization from the Small Business Administration, said Karen Mills, a senior fellow at Harvard Business School and former SBA administrator. The Treasury Department and the SBA didn’t release the application form for fintech and other non-bank lenders until last week.

“I think the fintechs were working very hard on the front end, but the back end of the pipe that hooks up to the fire hose of money, they had to wait for the Treasury for that,” Mills said.

The SBA didn’t provide an immediate comment.

PayPal, Square and Intuit all serve small businesses that are often overlooked by large banks because it’s costly for them to underwrite very small loans, according to Jo Ann Barefoot, chief executive officer of the Alliance for Innovative Regulation.

Smaller Loans

As many as 70% of PayPal’s small-business loans go to U.S. counties that have lost 10 or more banks since the financial crisis in 2008, according to Schulman. The company’s loans are generally less than $25,000 each — something true as well for small businesses seeking help from PayPal under the PPP, Schulman said in an email.

Square also serves borrowers that “have been locked out of the financial system,” said Jackie Reses, Square Capital lead. Women make up 55% of Square Capital borrowers, and 37% are under-represented minorities, she said in an interview.

Under the PPP, financial institutions including Bank of America Corp. have been favoring existing small-business customers because the process is easer if a borrower has been previously approved. On Monday, a federal judge ruled that preferential treatment under the CARES Act wouldn’t be barred after Bank of America was sued by a number of small businesses for being left out.

Florida Senator Marco Rubio said Monday on Twitter that the main challenge with PPP is no longer lender confusion, but that more lenders, including non-bank lenders, are needed to speed up distribution.

Fintechs are starting to take part in the PPP when almost three-quarters of the $349 billion program has already been allocated. The funding may run out as early as Thursday, top White House economic adviser Larry Kudlow said. An effort to add an additional $250 billion has stalled in Congress.

PayPal is offering access to the PPP to its existing 10 million merchants through a relationship with WebBank, a Salt Lake City-based bank that it already partners with for its Working Capital business. The company’s first emergency-loan borrowers include a chiropractic office in Kansas City, Missouri; a nail salon in Bayonne, New Jersey; and a shoe store in Winston-Salem, North Carolina, the PayPal representative said.

Automated Process

Intuit is using QuickBooks Capital, its existing business-loan platform, to automate and expedite the PPP application process, according to a company statement. Square’s program is first being offered to users of the Square payments platform, but the company said it plans to extend it to other borrowers once processes start moving more efficiently. The company has yet to approve any PPP applications.

“We launched when we were confident we could provide a smooth processing experience for all applicants, to give sellers more transparency around the status of their funds,” Reses said. “This is also why we’ve staggered our application rollout to Square sellers, as loan reviews are still a manual process.”

Now that fintechs have PPP approval, the next challenge is getting enough funding from the federal government to reach everyone in need, said Mills of Harvard Business School.

“I’m encouraged by the progress,” she said, “but we are not quite at the point we need to be where billions of dollars are flowing seamlessly to smaller and more vulnerable businesses.”

©2020 Bloomberg L.P.