As companies that kept their money with Silicon Valley Bank race to find payroll solutions for the upcoming week, Brex CEO Henrique Dubugras was spending the weekend working the phone to get into the lending business — at least temporarily — to try to help. The San Francisco-based fintech unicorn announced on Saturday that it had already received more than $1 billion in requests for an emergency credit line it announced on Friday. In an interview, Dubugras told Forbes that Brex was still in the process of securing lenders and setting terms with them on rates, but planned to do so by the close of the weekend.
“We’re 24/7 here, agreeing on terms and raising the money from lenders so we can start funding on Monday,” he said. Historically a corporate credit card and spend management business, Brex’s move into lending is temporary for now, Dubugras added, with an initial focus on helping companies make payroll in the next week — the top concern for companies left holding money in SVB accounts. “We just see this as a very unique moment in time that we’re uniquely positioned to help because a lot of these lenders, even though they have the capital, don’t have the capacity to operationalize thousands of loans,” he said.
Companies that have applied for the $1 billion-plus in payroll loans so far have about $10 billion in aggregate tied up at SVB based on their applications, Dubugras said. That number is separate from the billions that customers were reported to have transferred on Thursday to Brex. Accounts at SVB were frozen abruptly on Friday when the bank was closed and moved into receivership under the Federal Insurance Deposit Corporation, leaving the venture capital and startup ecosystem scrambling .
Dubugras declined to comment on the exact amount that had been transferred, and said Brex couldn’t know how much money startups had attempted to transfer on Friday but remained pending or frozen. A source with knowledge of the successful transfers, however, told Forbes they amounted to about $2 billion. Well-known and deeply intertwined with the tech industry, SVB’s collapse means that some startups suddenly lacked the means to pay employees as scheduled, and, in some cases, already-scheduled staff payments may not go through.
(Parker Conrad, the CEO of processor Rippling, posted a tweet thread Friday about the situation for affected customers. ) The bank was also used by a range of non-tech businesses, including schools and even wineries , meaning its ensuing payroll issues extend beyond into a number of sectors. In addition to Brex’s efforts, some venture capital firms have told founders that they planned to assist in making payroll payments; others were working over the weekend to secure loan solutions besides Brex.
“Brex’s emergency line is a popular option now,” one venture capitalist who asked to remain anonymous because they weren’t authorized to speak to the press told Forbes on Saturday. “VC firms are considering floating [the money] personally or as a firm,” among other potential solutions, the investor added. Other companies are raising additional capital on convertible notes and trading equity for dollars to get through this moment, the investor said.
(And many startups with funds in other banks or accounts have taken no action at all. ) Such efforts, Dubugras noted, remain pending. “Everyone is kind of trying to figure this out on the go.
We’re really happy if VCs are lending the money, God bless them,” he said. VC firms could also help by aggregating demand for Brex, he added, as a “more diversified group” of loan applicants could secure better rates with lenders. Not everyone, including within the VC community, trusts Brex at the moment.
Some investors have urged startups to put their money predominantly with America’s largest banks, such as JPMorgan Chase, to minimize risk. Asked by Forbes about its own financial health, Brex said that it had close to $1 billion in cash on hand. The way Brex is structured, meanwhile — with customers’ money kept in short-term treasuries and not loaned out or in assets that must be held to maturity — the company could return all customers their money in the same day, Dubugras said, without the risk of a bank run that toppled SVB.
(Brex said it also doesn’t carry such long-term securities itself. ) “We’ve seen a little bit of people transferring their money out to the big banks, for sure,” Dubugras said. “But we have way more inflows than outflows.
And we’re not a bank. ” Dubugras said Brex didn’t yet know what its limit would be on participation in the credit line, but said the $1 billion already pending is far from its cap. Interested startups, especially those that need money by Monday or Tuesday, should apply over the weekend, he added, especially if they don’t already have a Brex account.
Brex itself plans to make no profit from facilitating these loans, Dubugras said. But don’t mistake such actions for altruism. The company hopes that customers who use its credit line will stick around for its other services, Dubugras said.
More broadly, Brex needs the ecosystem to remain stable for that core business. “For us, a lot of startups missing payroll and going out of business, it’s terrible for our business,” he said. “So solving this is very good business for us.
” As for what happens next with SVB: Dubugras said that based on Brex’s own calls so far, he was hopeful the situation would be resolved. “If the only banks that Americans can trust are the big four, that is extremely bad for America. Having healthy competition in our banking system is something that is super crucial,” he said.
“Our hope is that the FDIC comes out with something tomorrow and at least releases some of the money back to companies this week. ”.
From: forbes
URL: https://www.forbes.com/sites/alexkonrad/2023/03/11/brex-startups-lending-silicon-valley-bank-payroll-crunch/
