How Financial Institutions Can Navigate the CARES Act & Paycheck Protection Program
When the CARES Act was signed into law on March 27, 2020, it brought with it a $350 billion paycheck protection program (PPP) aimed at helping U.S. small businesses recover from the impacts of the COVID-19 pandemic. Small businesses were able to begin accessing PPP loans through all existing SBA lenders and other participating financial institutions on April 3, while independent contractors and those who are self-employed will be able to take advantage of the program beginning April 10.
Reports are showing that the demand for these funds is going to be strong, along with concerns that the promised funding won’t be enough to effectively bailout all the small businesses that need it. There is also a limited amount of time to apply, as the current deadline is June 30. All of this means that financial institutions that don’t have the appropriate tools to handle the influx of applications are on a limited time period to implement a solution. Without a plan to help get the funds into the hands of those in their communities that need it, banks and credit unions will cause a delay in providing relief.
In order to quickly implement a plan for handling the increasing demand for the SBA and PPP funds, it is important for financial institutions to partner with a solution that can aid in helping small businesses get the monies needed while allowing the bank to address its credit concerns. Being able to share information across all parts of the bank is key and the right solution will allow for transparency from pipeline management to operations as well as robust reporting capabilities.
With shelter-in-place orders in effect across the state (and country) small business owners can’t complete applications in person or with an interview by a branch manager. In order to support a small business portfolio, financial institutions need to leverage a system that allows for the gathering of applications, required financial records, and other documentation through a digital process. This gives those small business owners the freedom to apply online, while the banks can utilize appropriate fraud technology to ensure the financial institution is making good quality decisions with accurate information. The right solution will also allow the client to only have to enter that information once, through that online application, resulting in faster loan decisions.
As unemployment rates skyrocket and the toll on the economy grows, it can be temping for banks and credit unions to want to lend to as many businesses as possible, even business types they have no experience with. While this might seem like it could be helping, its more important to focus on in-house skills that already exist rather than trying to develop new ones. Every financial institution has a defined skill set, a type of loan or industry set it knows better than anyone else. That is the “sweet spot” where banks and credit unions can do their best lending to help small businesses gain access to capital quickly. This reduces the risk for both the customer and the financial institution.
While there is a rush to implement solutions for SBA and PPP solutions, banks must also be focused on creating touchless, digital relationships lending through cloud based financial technology. Many institutions have lagged in creating an end-to-end digitized lending experience but with the sudden shift to remote work and contactless banking, it’s more imperative than ever that banks and credit unions invest in relationships with expert advisors in digitalization.
When it comes to meeting the need for SBA and PPP funds, moving into a digital lending process provides ease of use for both customer and employee. Financial institution employees can work from anywhere, keeping the workflow moving as it should. Customer engagement is more seamless through digital efforts, allowing them to trust the bank or credit union to guide them through an unknown experience. Small business owners that are looking for guidance or expertise will be able to remain in contact with their financial institutions 24/7, putting them more at ease.
The COVID-19 pandemic and its impact on the economy is unprecedented. As banks and credit unions look to be a resource for their community for the months to come, an SBA and PPP lending solution will be critical.
Baker Hill is the leading financial technology provider in delivering solutions for commercial, small business and consumer loan origination, risk and relationship management, CECL, and analytics. Earlier this month, the fin-tech firm launched Baker Hill NextGen® SBA Fast Track, which is designed to fast track small business applications looking to access CARES Act and Paycheck Protection Program (PPP) funds.