Brex helps startups borrow more than $1 billion to face SVB’s wage crisis

As companies stashing their money at Silicon Valley Bank scrambled to find payroll solutions for the coming week, Brex CEO Henrique Dubugras spent 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 Saturday that it had already received more than $1 billion in requests for an emergency credit line it announced Friday.

Dubugras told in an interview 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 end of the weekend. “We’re here 24/7, agreeing terms and raising money from lenders so we can start funding on Monday,” he said.

Historically a corporate credit card and consumer management business, Brex’s move into lending is temporary for now, Dubugras added, with an initial focus on helping businesses with payroll next week — the biggest concern for companies with money in SVB accounts. “We see this as a very unique moment that we’re uniquely positioned to help because many of these lenders, even if they have the capital, don’t have the capacity to operationalize thousands of loans,” he said.

Companies that have applied for $1 billion-plus in payday loans so far have about $10 billion combined tied to SVB based on their applications, Dubugras said. That number is separate from the billions that customers were reported to have transferred Thursday to Brex. Accounts at SVB were abruptly frozen on Friday when the bank was shut down and moved into receivership under the Federal Insurance Deposit Corporation, leaving the venture capital and startup ecosystem reeling.

Dubugras declined to comment on the exact amount transferred, saying Brex could not know how much money startups had tried to transfer on Friday but remained pending or frozen. However, a source with knowledge of the successful transfers said Forbes they amounted to about $2 billion.

Well-known and deeply intertwined with the technology industry, SVB’s collapse means that some startups suddenly lacked the funds to pay employees as planned, and in some cases, already planned staff payments may not go through. (Parker Conrad, CEO of processor Rippling, posted a tweet thread on Friday about the situation for affected customers.) The bank was also used by a number of non-tech businesses, including schools and even wine producers, meaning that the subsequent wage problems extend beyond a number of sectors.

In addition to Brex’s efforts, some venture capital firms have told the founders they planned to help pay salaries; others worked at the weekend to secure loan solutions in addition to Brex. “Brex’s emergency phone is a popular option now,” said one venture capitalist who asked to remain anonymous because they were not authorized to speak to the press. Forbes on Saturday. “VC Firms Consider 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 haven’t done anything at all.)

Such efforts, Dubugras noted, still remain. “Everybody’s kind of trying to figure this out as they go. We are very happy if VCs lend 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 seekers could secure better rates with lenders.

Not everyone, including the VC community, trusts Brex at the moment. Some investors have urged startups to put their money mainly with America’s biggest banks, such as JPMorgan Chase, to minimize risk. Asked by Forbes about its own financial health, Brex said it had close to $1 billion in cash. The way Brex is structured, meanwhile—with customers’ money held in short-term Treasuries and not lent out or held-to-maturity assets—the company can return all customers their money on the same day, Dubugras said, without the risk of a bank run SVB. (Brex said it also does not carry such long-term securities itself.)

“We’ve seen a little bit of people moving their money to the big banks, for sure,” Dubugras said. “But we have much more inflows than outflows. And we are not a bank.”

Dubugras said Brex did not yet know what the limit would be for participation in the credit line, but said the $1 billion already pending is far from the limit. 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 does not plan to make money from facilitating these loans, Dubugras said. But don’t mistake such actions for altruism. The company hopes that customers who use the credit line will stick to its other services, Dubugras said. More generally, Brex needs the ecosystem to remain stable for that core business. “For us, there are a lot of startups that are missing payroll and going out of business, it’s terrible for our business,” he said. “So solving this is very good for us.”

As for what happens next with SVB: Dubugras said that based on Brex’s own conversations so far, he was hopeful that 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 very important,” he said. “Our hope is that the FDIC will come up with something in morning and at least some of the money will be released back to companies this week.”