Why Riskalyze, Snappy Kraken took PPP loans: ‘It wasn’t a close call,’ CEO says
To take a PPP loan or not? For Riskalyze CEO Aaron Klein, it “wasn’t a close call.”
Klein’s firm took one earlier this year following a dramatic drop in the stock market and the onset of the coronavirus pandemic. It saved jobs, he says.
His risk analytics firm and other fintechs accepted federal aid aimed at helping small businesses impacted by the coronavirus. The loans, which were made by private lenders, don’t need to be paid back so long as a majority of the funds are used for payroll, according the Small Business Administration.
Riskalyze accepted between $2 million and $5 million as part of the PPP, according to data released by the SBA (the agency only provided loan ranges, not specific amounts). Snappy Kraken, a digital marketing provider, and 280 CapMarkets, which provides a digital marketplace of fixed income investments, also accepted loans between $150,000 and $350,000.
The companies join a list of more than 1,400 wealth management firms who accepted the loans, some of which have faced criticism for taking money intended for businesses forced to shut down during the pandemic.
Klein and other fintech executives say their participation in the federal aid program was necessary to maintain staff and continue serving advisors.
“When the COVID-19 crisis hit, we assumed that meant we'd be forced to lay dozens of people off, and live within our cash flow. Thanks to the PPP program, we were able to protect 100% of those employees and their jobs,” Riskalyze CEO Aaron Klein says in an email. According to the SBA’s data, Riskalyze retained 157 employees.
“This wasn't a close call … If I was asked the same question 100 more times, I'd make the same decision to protect our employees every single time,” Klein says.
Klein did not respond to a follow-up question for specifics on how the coronavirus impacted Riskalyze’s business, or why the company needed a loan to continue paying staff.
Kyle Van Pelt, a solutions manager with SS&C Advent and former vice president of partnerships at Riskalyze, says there was some concern in April that advisors, facing potentially steep revenue drops themselves, would be unable to pay technology vendors. For software companies dependent on licenses, this is “the whole kit and caboodle,” Van Pelt says.
Many fintech startups run at a loss to begin with, and a threat to licensing fees could be disastrous. Given the uncertainty of March, Van Pelt says fintech firms “were certainly going to apply for a PPP loan and take it.”
He adds: “I can’t really fault them for making those decisions.”
Snappy Kraken CEO Robert Sofia says several panicked advisors asked for leniency in payment terms, including one firm with “six figure annual license fees” requesting a delay in payment. His company was one of several fintech vendors offering discounted service to advisors, which ate into revenue.
Combined with sunk marketing costs due to cancelled events, the PPP loan helped the company bridge the gap on its balance sheet, Sofia says. The company was able to retain 34 employees, according to the SBA’s data.
“In hindsight, I would say that the things that we did collectively insured that our business was not negatively impacted,” he says. “[The loan] meant business operations could continue as usual.”
Sofia says that while there are probably some businesses who took funds without really needing it, it’s imprudent to castigate firms without a complete understanding of their financial situation.
Among RIAs that also participated in the federal aid program were Carson Group and Steward Partners, which oversee billions in client assets. Dynasty Financial Partners, which services RIAs and breakaway brokers, also took a PPP loan, as did some of the advisors in its network.
The Payment Protection Program faced numerous challenges when it first rolled out in April, including frequent changes to loan terms and lenders getting overwhelmed with applications. Worried the originally allotted $350 billion would quickly dry up, many companies applied without thinking about a possible public relations fiasco if they were seen as taking funds from mom-and-pop retailers, says Tim Welsh, CEO of consulting firm Nexus Strategy.
“It was such a crazy time, and there was a ton of encouragement from accounting firms to take advantage of a once-in-a-pandemic opportunity to have protections for your business,” Welsh says.
Congress later added more funds in the program, bringing it to $670 billion. There currently remains $130 billion in lending available, meaning no technology companies or advisors have really prevented other businesses from accessing money, Welsh says.