The coronavirus pandemic has been nothing short of an existential crisis for small businesses across America. Closed doors and other drastic measures to cut back on human contact have been part of the government’s efforts to limit the spread of the outbreak. But with large scale economic issues, there are also opportunities. The SBA’s PPP loan program provided a great opportunity for Community Banks to demonstrate their value to small businesses over the all electronic engagement with the nation’s biggest banks.
The Government Stepped In with a Temporary Solution
Uncle Sam stepped in to provide businesses a financial lifeline in the form of billions in government-backed loans. The signature feature of this financial rescue plan, the Small Business Administration’s Paycheck Protection Program (PPP), put the onus on lenders large and small to field applications and determine eligibility.
While well-intended, the program got off to a mixed start. Outrage that many not-so-small companies received access to financing from the $349 billion program, at the expense of small businesses, compelled Capitol Hill to deploy a second phase of the program that included $60 billion specifically set aside for small lending institutions to parcel out to smaller firms.
This second phase of the PPP opened the door for community banks to provide financing to small businesses that they may not have already had as clients. The pressure was on banks to process applications quickly and efficiently, because the loan program functioned on a “first-come, first-served” basis.
Since virtually no community banks had a digital business application platform in place, those that teamed up with Fintech companies to streamline their application and underwriting process were in the best position to serve their entire business client base.
Could your bank have done a better job of getting your small business borrowers access to the financing they so desperately needed? And are you ready for the coming wave of borrowers applying for loan forgiveness under PPP guidelines?
The Personal Touch
At this time of dire need by small businesses, community banks have generally been more agile than big lenders to help steer their business clients through the PPP loan application process. The advantage comes from community banks’ more personalized service to small businesses relative to the big Wall Street banks. As such, smaller banks have been able to provide more hands-on help with applications and follow-up needs, solidifying their customer relationships at the same time.
That’s been a key differentiator for smaller banks, especially as bigger lenders faced a logjam of applicants that they couldn’t properly serve. That drew the ire of frustrated applicants who swiftly blasted the big banks on social media portals.
While the more personal touch provided by community banks has been key in getting their clients funding, it’s the lenders that have been aggressive in their shift to digital banking that have put their clients in the best position to get the financing they need.
The Fintech Way
Even as many lenders processed their clients’ PPP loans manually, forward-thinking community banks partnered with Fintech companies like FINSYNC to streamline the process.
Such partnerships give banks access to a significantly faster online application and processing platform, enabling them to serve more clients at a time when the need for financing has never been more dire for small businesses. Adopting a Fintech solution can increase efficiency by providing workflow management tools, but also through reducing the number of applications with errors.
The desire to more efficiently handle applications and distribute PPP funds led Florence, South Carolina-based First Reliance Bank to team up with FINSYNC, which opened up its online loan application platform and Lender’s Portal to banks at no charge.
“We deployed FINSYNC’s electronic loan application and Lender’s Portal the day we learned of the solution, and shortly after were getting SBA loan numbers and funding loans,” said John Lindley, VP Business Operations at First Reliance Bank.
How did it work?
- The lender’s business clients apply for financing online via a form that is deployed specifically for their client base.
- They are guided through the e-signatures on the SBA documents.
- They are granted access to a portal for submitting their supporting documentation including proof of payroll costs.
- The bank’s team gets notification each time a new application is received and can carry it through to successful submission to the SBA.
Applicants also had a far easier time with an all-digital process. Once small business owners gathered their payroll data and supporting documents, completing the online application generally took less than 30 minutes.
Preparing For Loan Forgiveness
While SBA guidance is not complete and will likely be delivered piecemeal, there is already a consensus that reviewing and approving PPP forgiveness applications will be significantly more difficult than PPP loan applications. Teaming up with a Fintech company can make it easier for banks as they brace for the next phase in the PPP process: A torrent of loan forgiveness requests as businesses complete the 8-week applicable period.
Broadly speaking, small businesses may have 100% of their PPP loan forgiven if they maintain their payrolls during the crisis or restore their payrolls afterward. In addition, they must have used three quarters of the loan funds on qualifying payroll expenses and the remaining amount to pay for certain costs: mortgage interest, rent, utilities and interest on debt incurred before February 15.
Still, sorting the requests for forgiveness is going to present banks with new challenges, as they’ll have to ensure that borrowers have presented sufficient documentation to support their requests for forgiveness. Unfortunately, the guidance for documentation, collection and submission of the paperwork needed for businesses to get their loan forgiven is not yet fully distributed.
Fintech to the Rescue
Fintech companies are stepping up to simplify this process for borrowers and banks alike. FINSYNC has rolled out a multi-phase forgiveness solution that focuses on education prior to submission and helps borrowers complete the submission correctly the first time. For lenders, they’ll receive a complete forgiveness application with attached supporting documentation and be able to electronically submit it to the SBA after they complete their internal review. This tool makes it easier for banks to accept, track, certify and ultimately submit the borrowers’ forgiveness documentation to the SBA.
Without such a platform, banks will have to spend more time guiding clients through the process. Borrowers only have six months from the time they receive their funds before they must begin paying them back. Companies that don’t succeed in getting part or all of their PPP loan forgiven will be under pressure to make timely payments. That amplifies the risk of loan defaults for banks that have made these loans.
Changing With the Times
Looking back on this time of crisis will no doubt yield many insights for the financial services industry. It’s safe to say one of them will be that community banks with access to an online platform for education, loan applications and processing were better able to serve their clients in the most difficult of times. And, it should go without saying, lenders that can offer their customers a faster and simpler way to successfully access financing will have a leg up on less capable rivals, and may carry lessons learned into streamlining their traditional business financing processes once the crisis passes.
Developing more digital banking services will also be key to remain competitive and woo younger depositors who have grown accustomed to digital banking, easy and immediate money transfers and online payments. One way to accomplish that goal is by teaming up with Fintech services companies. Such partnerships have grown more common in recent years as online lenders have become a bigger part of the business financing landscape, putting pressure on traditional banks to remain competitive and expand lending to businesses. And they offer smaller banks a way to clear some of the obstacles that they face when making small business loans, including documentation, compliance, cost and underwriting.
By broadening lending to small businesses through partnerships, community banks stand a better chance of boosting their loan business. It can also end up stemming banks’ rate of attrition in checking, savings and other accounts, as signing up a new borrower increases the likelihood that the borrower will turn into a full-fledged, loyal depositor who will be less likely to take their banking business somewhere else.
Personal Touch + Fintech = Victory for Community Banks
Community banks have been an essential gateway for small businesses to get the financing they desperately need during this pandemic and shockingly swift economic downturn. Without their focus on delivering a breadth of financial options and services for their clients, many more small businesses might have gone under, while others might not be in position to weather the economic shutdown long enough to reopen.
This pandemic and its economic ravages won’t last forever, but if there’s one big takeaway for banks out of all this, it should be that providing their services online while focusing on speed and efficiency is not just smarter and more cost-effective, but an essential component of serving their clients’ needs.
About the Author:
Eddie Davis (pictured above) is the VP of Business Development for FINSYNC, a consolidated cash flow management platform focused on helping businesses grow. FINSYNC’s intuitive online tools help automate payments and accounting, and provide valuable insight through cash flow analysis. The lending network gives businesses access to fast, affordable financing. FINSYNC’s virtual community of specialists provides unrivaled support with bookkeeping, accounting, human capital management, financial analysis and corporate strategy. Connect with Eddie on LinkedIn and follow @FINSYNC on Twitter.