COVID-19 Throws a Wrench in Traditional Lending Methods for Banks

April 16, 2020 Joshua Ault

The impact of the Coronavirus pandemic is being felt by businesses large and small. Most are encountering economic hardships as sales plummet and emergency funds evaporate. This economic reality is especially hard-hitting for small and medium-sized businesses (SMB). 

The recently signed Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allocates $2 trillion to support the economy, both individually and for businesses. A significant portion of that funding is allocated to small business programs such as paycheck protection, Economic Injury Disaster Loans (EIDLs), and tax reliefs. 

In a world of uncertainty and significantly reduced economic activity, the CARES Act provides the ability to receive critical cash in-flow when it is most needed. But this ability to receive funds poses new challenges for those providing the access to and those requesting the funds.  

The biggest challenge is speed. Many SMBs need funds now to continue business operations. Traditional lending processes are built on the premise of reducing risk and safely lending money. This prioritizes reducing risk over speed, which is the standard for a normally functioning economy. However, in a critical time of need, speed must be prioritized over risk. Businesses need money and they need it now. A survey conducted in 2016 by JP Morgan Chase Institute found that half of all small businesses carry a cash buffer of less than one month, and one-quarter of small businesses have fewer than 13 days in cash reserves. This creates challenges for traditional processes.  

Another challenge during this time is capacity. Lenders are going to be overwhelmed by the volume of loan requests. Those with highly manual processes are going to be slower and struggle to meet the needs of their customers. Call centers will not be able to handle call volumes, which means customers will experience high wait times. Customer satisfaction scores will decline. 

These challenges present a great opportunity in the marketplace for those who can capitalize on it. In their customers' greatest time of need, lenders that can serve customers quickly and efficiently are going to separate themselves from their competition. They are going to gain market share and build brand advocates that will last for many years. 

Join Appirio’s Virtual conference on April 16th. My colleague Dan Nolan and I will discuss CARES Act strategies for banks and how banks can position themselves to quickly and efficiently serve their customers. Pre-register here: http://go.appirio.com/unlock-discover-virtual-conference/
 

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