Lessons Bank Lenders Must Learn from the Paycheck Protection Program

Financial institutions that could shift to agile approaches to product development and that stretched for minimum but immediate viability, rather than perfection, enjoyed the best success in offering customers access to the federal small business loan/grant program.

Rapid change is the name of the game in the COVID-19 era. Unemployment claims continue to rise, putting immense pressure on government and financial institutions to act quickly and decisively to provide relief. Getting things done quickly has often meant managing unanticipated obstacles and effects in a time crunch. Right now, it also means managing amid heightened emotions and stakes — people’s financial, medical and business wellbeing are all on the line.

One of the ongoing developments in this saga has been the Paycheck Protection Program, part of the CARES Act. In theory, the program — now past the loan-granting stage — is straightforward. But PPP has posed numerous ongoing challenges for business owners, financial institutions and the government.

When COVID-19 and the associated shutdowns first started becoming a global reality, existing business continuity plans gave financial institutions some advance preparation for the operational problems associated with social distancing and quarantine. However, introduction of a brand-new loan product as part of government stimulus — something needed in days not months — was almost impossible to truly prepare for. There was limited ability to predict how the government chose to roll out the funds, and each stage brought new questions.

While the program was meant to directly help small business owners, they bore the brunt of the confusion and the lack of clear direction associated with PPP. Lenders had the chance to either cement their relationships with their small and medium-sized business customers. Those who couldn’t rise to the occasion added to those customers’ frustrations.

Serving Customers in Pandemic’s Abnormal Times

The impact of the PPP has been complex, multi-faceted and difficult to fully grasp for business owners, financial institutions, and the government alike. However, it was a necessary response to a nebulous crisis.

Banks and other community institutions have needed to make sure they have the flexibility, agility and clarity to help their business customers secure their financial health, especially when the rules have kept changing for PPP eligibility, time periods for using funds and payback periods. Along the way, the Small Business Administration also made it easier for underserved businesses and entrepreneurs to access funding. Lenders had to be ready and up to date when dealing with potential applicants.

In short, these are not normal times, which means that financial institutions cannot rely on their normal processes to get things done and must move much faster than normal development cycles account for.

Taking the “Minimum Viable Product” approach allowed faster-moving financial institutions to get something online for customers to respond to, using real-time customer usage and feedback to guide subsequent updates and further development.

Take, for example, Atlantic Union Bank. It scaled its PPP team from 40 to 400 in nearly a day, put an online application together with validation and security parameters in place, and started letting customers apply for loans. The bank rolled out updates and improvements every six hours. This nimble, customer-first approach, combined with the bank’s existing cloud infrastructure enabled it to respond quickly and compassionately to worried business owners, rather than waiting for a “perfect” application to be developed while customers worried about survival.

Read More: What Banks Can Learn from Fintechs about Digital Onboarding

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PPP Requires an Ongoing Commitment to Adaptability and Agility

The PPP application stage is just the first step in what will be a multi-month — or in some cases a multi-year — journey for institutions and business owners. Financial institutions will need to start collecting data from loan recipients about how the money was used and whether it meets government criteria for forgiveness.

To make this process as smooth as possible — and to avoid overburdening the same burnt-out teams that have been working so hard — financial institutions need to start laying the groundwork for an automated process for getting the PPP loans verified. That means paying attention to government communications about requirements, collaborating with other industry leaders to get clarity, and beginning to lay the foundation for what this process will look like.

While thinking this far ahead might feel overwhelming for financial institutions just trying to keep their head above water after the initial application process, it will make life much easier when the burden of proving that a loan meets qualifications for forgiveness becomes more urgent.

PPP will likely only be the beginning of the recovery for small businesses. Financial institutions must acknowledge that for many firms PPP loans are not enough. According to SBA numbers, more than 50% of U.S. small businesses are home-based so PPP loans may not make sense or be available to these micropreneurs. Their way of doing business may be more permanently altered. Financial institutions must consider additional short-term and long-term strategies that small businesses need to survive for longer than just the next months and consider the needs of micro-businesses and home-based ventures. They may need to work quickly to create their own programs to provide such aid.

COVID-19 Added New, Unforeseen Dimensions to Business Continuity Planning

This unprecedented time has given financial institutions of all sizes much to think about when it comes to their business continuity strategy. Being mandated to develop a remote workforce and operate virtually, while also introducing a brand-new loan product in the midst of a pandemic, is something few institutions were prepared to do. Now more than ever we see how essential agile and scalable technology is to crisis response.

During this crisis, the financial institutions I’ve known to be most successful are the ones who already have invested in leadership, vision and systems that support customer-centric digital strategies. Now more than ever, financial institutions need nimble, future-proof technology to get their customers or members the help they need — fast.

There is one bright spot in all of this – you don’t have to be one of the top ten banks to be able to respond to changing mandates and customer needs. Where many financial institutions have previously been slow to move to the cloud, they are now facing the very real limits of on-premise hosting to roll out new products and manage spikes in applications. Those with open, flexible front office platforms were able to quickly deploy new products and a digital experience, streamline the application process, and process applications before the initial round of PPP funding ran out.

Financial institutions of all sizes need to learn from this experience and start preparing for the next wave so they can offer their customers the best support possible during one of the biggest crises they may ever face.

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