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The tiny bank that got pandemic aid to 100,000 small businesses

Gilles Gade, the founder and chief executive of Cross River Bank, in Fort Lee, N.J., June 16, 2020. Cross River, with a single branch in Teaneck, has cranked out more loans under the federal Paycheck Protection Program than all but three of the country's biggest lenders. (Sasha Maslov/The New York Times)
Gilles Gade, the founder and chief executive of Cross River Bank, in Fort Lee, N.J., June 16, 2020. Cross River, with a single branch in Teaneck, has cranked out more loans under the federal Paycheck Protection Program than all but three of the country's biggest lenders. (Sasha Maslov/The New York Times)

From its address on the west side of the Hudson River to its tiny balance sheet, Cross River Bank is nothing like Manhattan’s Wall Street behemoths. But as part of the government’s efforts to stave off an economic catastrophe, it stands among giants.

Cross River has churned out loans to more than 106,000 businesses through the Paycheck Protection Program, a centerpiece of the government’s $2 trillion CARES Act. That puts it just behind three of the country’s most prolific lenders: Bank of America, JPMorgan Chase and Wells Fargo.

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Cross River’s size — it has a single branch, in Teaneck, New Jersey, and just a few billion dollars in assets — means it is generally described as a community bank. But it is anything but a small-town lender: Cross River has spent the past decade carving out a lucrative business as a bank for the financial technology startups trying to compete with traditional banks.

When the coronavirus pandemic ground businesses to a halt, the government wanted to use banks to distribute $660 billion in forgivable loans — fast — to small-business owners trying to pay workers who might otherwise become jobless. Cross River was one of the quickest and most aggressive, working with dozens of so-called fintechs to scoop up borrowers who couldn’t get the attention of the big banks.

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“This is in our DNA,” said Gilles Gade, Cross River’s founder and chief executive. “It’s exactly what we were built for.”

In normal times, Cross River is a largely invisible partner for dozens of companies like Affirm, which offers on-the-spot financing for online purchases, and Upgrade and Upstart, which make personal loans. It is accustomed to high-volume, low-dollar lending.

But the Paycheck Protection Program was an opportunity on a whole new scale, with small businesses across the country applying for hundreds of millions of dollars in emergency aid. More than 30 firms funneled some or all of their borrowers through Cross River, including large companies like Intuit, the maker of the popular QuickBooks accounting software, and Kabbage, an online small-business lender. Other borrowers arrived through niche businesses like Divvy, an expense management tool, and Womply, a small-business marketing system, that wanted to serve their customers.

Cross River’s role is, by design, behind the scenes. Jessica Smith applied for a loan nearly as soon as the relief program began, in early April, but was “ghosted,” she said, by her original lender. So she turned to Pearl Capital, which she had used before for a merchant cash advance for her Bella Vita Salon and Spa in Saugatuck, Michigan.

“I got word that I was approved the next day,” Smith said.

When the loan’s closing documents arrived, Cross River’s name was on them. Her cash arrived a week later. She reopened last week and plans to use her loan to pay her workers as business returns.

The average loan through the paycheck program is about $111,000, but Cross River’s are much smaller: $44,062 on average, by far the lowest of the program’s 15 largest lenders, according to data from the Small Business Administration, which oversees the program.

Those tiny loans add up. Cross River has lent a total of $4.7 billion — nearly twice the assets the bank had on its books less than three months ago, according to a regulatory filing. On its average loan, the bank collects a fee from the government of around $2,200, a portion of which is shared with the company that brought in the customer.

Gade started Cross River, which has its headquarters in Fort Lee, New Jersey, in 2008 after more than a decade of working on Wall Street. That included a stint as the chief financial officer of First Meridian Mortgage, which operated for a few years as Trump Mortgage after licensing the name of the future president. (Gade left soon after the name change and said he had no ties to President Donald Trump or his administration.)

The plan was to buy distressed assets on the cheap after the Great Recession, but a new opportunity came along in 2010. A fintech, GreenSky, had a deal with Home Depot to offer customers financing for repair and renovation projects, but needed a partner with a banking charter to make the loans. It was the bank’s first foray into a lucrative new market: It now writes loans for everything from Peloton exercise bikes to funerals, then typically sells the loans back to the fintechs that originated them.

This business model is known in the financial industry as “rent-a-charter” — the banks handle the industry’s strict regulatory demands, while the fintechs furnish the shiny interfaces.

But the arrangement has downsides. Critics warn that it can enable predatory lending as fintechs dodge and weave around state usury caps and other consumer protection laws.

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Cross River has had a few scrapes: It paid a $642,000 penalty in 2018 for what the Federal Deposit Insurance Corp. called deceptive and unfair tactics on loans it made for Freedom Financial Asset Management, which sold high-fee debt consolidation loans. (A bank spokesperson said Cross River had beefed up its compliance oversight in response.)

“Cross River has a pretty good appetite for risk,” said Ron Shevlin, director of research for Cornerstone Advisors, a bank consultancy.

The benefits of its fintech alliances have, so far, outweighed the financial and regulatory costs of the handful of deals that turned bad, he said.

Gade sees the fintechs that use Cross River as fulfilling customer needs that traditional lenders have ignored. And to him, the Paycheck Protection Program was the ultimate unmet need.

In the program’s early days, many borrowers struggled to get in. Many banks restricted their loans to existing customers, penalizing those without prior relationships — a particular problem for minority business owners. Some fintechs wanted to make loans themselves, but the government was slow to grant them permission.

Through its partners and its own website, where it accepted any qualified applicant, Cross River started cranking out thousands of loans. Gusto, which processes payrolls for around 100,000 small businesses, was one of those partners.

It took less than 24 hours to connect Gusto’s systems to Cross River’s and sign a contract, said Megan Niedermeyer, Gusto’s head of legal and compliance.

“Being able to do that in the middle of a crisis was impressive,” she said.

Processing a high volume of loans was only part of the challenge. Cross River also needed cash.

Loans made through the Paycheck Protection Program are nearly risk free for banks — they’re guaranteed against default and intended to be forgiven if borrowers comply with the program’s rules — but lenders have to advance the cash and wait months for the government to repay them. The Federal Reserve promised to set up a way for banks to have access to cash to lend, but details weren’t final by the time the program began. So if Cross River wanted to lend billions of dollars, it needed to find money to do it.

The bank bought online ads in early April promoting high-yield 12- and 24-month certificates of deposit, with rates as high as 2.25% — about twice the industry average at the time. That brought in $250 million. Cross River also paid high rates to attract about $1 billion in long-term deposits from fintechs like Betterment and Wealthfront, giving it access to immediate cash.

“We raised a ton of deposits and built a war chest,” Gade said. “It was very costly.”

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The Fed opened its lending program in mid-April, giving Cross River a much cheaper way to obtain cash for loans. The bank soon became its biggest borrower.

And Cross River found another way to benefit: It bought more than $1 billion in loans made by other lenders and passed those, too, along to the Fed, collecting a fee in the process. Using its own loans and those it has bought as collateral, Cross River has already received $5.4 billion from the Fed, the central bank’s data shows.

But the bank’s job isn’t finished — with just 350 employees, it still has to service all of the 106,000 loans it has made. Borrowers who want their debt forgiven must prove they used the money appropriately, a potentially complicated process.

Here, too, Cross River found a fintech partner. The bank hired Scratch, a loan-servicing startup best known for its efforts to reform student loan payments, to guide Cross River’s PPP borrowers.

Scratch is even smaller than Cross River — fewer than 50 employees — but Gade is cautiously optimistic that things will go smoothly, even if he has learned to count on nothing with the relief program. At every step, it has been chaotic, plagued by technical problems, shifting rules and confusion.

But the challenge has been worth it, Gade said.

“Every loan we send out, we’re saving businesses,” he said. “We’re saving paychecks — we’re saving lives. That’s really the way we look at it.”

c.2020 The New York Times Company

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