How This Community Bank Cracked the Code on Continuous Innovation
By Matt Doffing, Senior Editor at The Financial Brand
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Executive Summary
- Community Bank & Trust’s unique tax refund loan targets self-employed individuals — an underserved segment that it hopes to build relationships with.
- The loan is tied to a tax credit that expires this year, so the bank is using infrastructure created to facilitate these loans to roll out new product or services –illustrating how small banks have used one-time opportunities as stepping stones for new business lines.
- Community Bank & Trust partnered to make it easy for small businesses to determine if they qualify for tax refund loan, which allowed it to access people who may otherwise not have applied.
When Community Bank & Trust in LaGrange, Ga., launched a specialized tax refund loan product this year, it seemed like a strange move.
After all, the loan program wasn’t repeatable next tax season and came with a complex operational setup. It also had a niche target audience, as it was tied to a one-time tax credit created to help self-employed individuals impacted by the pandemic.
But the short-term payoff wasn’t the point.
“This sort of one-shot-in-the-dark program is really the building block of the future of our bank,” says Chris Hurn, the president and chief executive officer of Community Bankshares, the bank’s holding company.
Here’s an inside look on how its gambit on a new product came about and the technology hurdles it had to overcome in a tight timeframe.
What’s So Unusual About This Tax Refund Anticipation Loan?
The product — which took about nine months to go from idea to its February launch — isn’t a typical refund anticipation loan. The specifics make it entirely unique.
Community Bank & Trust offers the loan only to those eligible for a relatively little-known federal tax benefit created in the wake of the COVID-19 pandemic. The benefit is formally called the Sick Leave and Family Leave (SLFL) tax credit but is more commonly referred to as the Self-Employed Tax Credit (SETC). It targets self-employed individuals, gig workers, sole proprietors, and single member LLCs.
Qualifying recipients could receive thousands of dollars in refundable tax credits for missed work due to illness or caregiving — relief many didn’t even know existed.
The Size of the Opportunity:
About 40 million people had some self-employed earnings during the pandemic. The maximum amount of the tax credit available to those who qualify is $32,220.
While the tax credit was only applicable to the 2021 tax year, people were given up to three years to apply for it, meaning a narrow but valuable window remained open. Those who filed their tax return on time in 2022 had until April 15, 2025 to apply, while those who filed an extension could claim it even later in 2025.
“They would have up until the date of when they filed,” Hurn says. “In other words, if they filed an extension let’s say on April 15 of 2022, but then they didn’t actually file their 2021 personal tax return until October 1 of 2022, they would then have until October 1 of this year, three years later, in order to apply for this tax credit.”
Hurn says the target market is sizable, given that there were about 40 million people who had some self-employed earnings during the pandemic. Moreover, about 40% of those who are self-employed typically file for an extension, so there are many who still qualify through the coming months.
The maximum amount of the tax credit is $32,220, he adds. “It’s a calculation based on what your daily rate is, which comes straight from the tax transcripts from the IRS, times the number of days you were affected.”
The bank offers its tax refund loans only on amounts of $3,000 or more.
“That was a choice that the bank made” because loans for smaller amounts would not be profitable,” Hurn says. “But you can apply for and get a tax credit smaller than that.” In fact, one applicant reportedly sought a tax credit for $120.
A Complex Launch for a Temporary Opportunity
To seize this loan opportunity, Hurn and his team put in a lot of long nights. Besides building out the requisite technology, they had to create new policies and procedures and work with regulators to get them comfortable with the product and the process.
“This is a brand-new product for our bank,” Hurn says. “This isn’t something that just gets thrown up over a couple weekends.”
The Biggest Tech Time Suck for the Bank:
Choosing a middleware provider and customizing the technology to support what the bank wanted to do.
A fintech called Lendesca is a key partner for Community Bank & Trust’s refund loan product. The fintech — which Hurn co-owns and where he holds the title “chief executive partner” — started offering self-employed individuals an automated process that helps with applying for the tax credit. After that, any applicants who wanted to receive the money quickly rather than wait for the government to send it could opt to apply for a refund loan.
Hurn says the pitch is: “We’ve built out a system to make it fairly simple for you to determine if you qualify, and if you do, for you to go through the whole process and even get your money very quickly, as opposed to waiting months and months and months for the IRS to get it to you.”
Not everyone chooses a loan. But those who do pay nothing up front when applying for the tax credit, Hurn says. Instead, the first use of proceeds from the loan covers its fee. The bank also charges borrowers a fee.
In what Hurn describes as the most time-consuming part of the overall project, Community Bank & Trust had to layer a middleware system on top of its core banking platform, a kind of translator and traffic cop between a bank’s legacy core system and more modern software from fintechs.
Besides allowing the two different systems to communicate with each other, middleware also can help facilitate real-time transaction tracking and risk analysis — which were essential for processing the loans securely and efficiently.
“We’re quite proud of the fact that what we’ve built automates this process almost from start to finish,” Hurn says.
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Not Just a Loan — A Proof of Concept
Even though this refund loan program is inherently short-lived, the technology stack behind it isn’t. Hurn says the most tangible benefit is the infrastructure Community Bank & Trust now has — allowing future fintech-powered offerings to be launched far more easily. He anticipates that the bank could come out with a new product on a quarterly basis going forward.
Chris Hurn, president and CEO of Community Bankshares
“We knew by spending the time and money to create a middleware system that works for us as a bank, we can then, very simply, customize it going forward when we offer additional products, which is exactly what we’re going to be doing,” Hurn says.
“We have a lot of people coming to us now who understand what we’ve done and saying, ‘Would you guys be interested in this? Would you be interested in that?’ So this has much longer-term implications for us,” he adds.
The experience of implementing the refund loan program also will continue to benefit the bank through another advance in its use of technology. The team streamlined one of the thorniest aspects of lending: fraud prevention.
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A Time-Saver for Government-Guaranteed Lending
To verify tax return information before disbursing funds to those seeking refund loans, Community Bank & Trust relies on transcripts from the IRS. Initially, completing this step in the process could take up to two weeks.
“The available tax transcript companies left a little to be desired. Not that they didn’t do a good job, but it took a fairly long time to get tax transcripts from them,” Hurn says.
But in May, the bank partnered with a tech startup that enabled nearly instant transcript retrieval.
IRS transcripts are also necessary for U.S. Small Business Administration and U.S. Department of Agriculture loans — so the speedier retrieval is an improvement that will be implemented across the bank’s government-guaranteed lending business as well.
“We’re taking what we learned there, and we’re going to apply it to what we do on a daily basis,” Hurn says. “We will no longer be waiting such an extended period of time to do a basic anti-fraud verification check.”
A Big Breakthrough for the Bank:
Choosing a middleware provider and customizing the technology to support what the bank wanted to do.
Thanks to a partnership with a tech startup, Community Bank & Trust reduced the time it takes to retrieve IRS tax transcripts from up to two weeks to nearly instant — improving efficiency across all of its government-guaranteed lending.
SBA and USDA loans are the linchpin of the bank’s growth strategy, as The Financial Brand has reported previously. (See “How One Small Bank Scales Business Lending — and Helps Others Do the Same.“)
Its big push in government-guaranteed loans has led to impressive growth already. As of the end of the first quarter, Community Bank & Trust had $236 million of assets, a 60% increase from a year earlier, according to data from the Federal Deposit Insurance Corp.
Hurn declined to name the tech partner helping with the IRS transcripts, but noted that it is backed by Y Combinator, a well-known startup accelerator and venture capital firm based in Mountain View, Calif.
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A Fit with Community Bank’s Bigger SBA Vision
Hurn believes the tax refund loan program will pay dividends in the future in other ways too, especially since Community Bank & Trust is targeting small business owners as its customer base and is focused on SBA lending.
Hurn points out that the borrowers in this case — self-employed individuals and gig workers — are basically entrepreneurs with microbusinesses. The refund loans may be a one-time thing, but they create a pathway to serve this audience, which is one a lot of other banks tend to overlook in favor of more mature businesses.
“We want to be there at the beginning stages and grow with them,” Hurn says.
The range of workers eligible for the self-employed tax credit run the gamut. “It could be a realtor. It could be an IT consultant. It could be a personal trainer, an Uber driver, a Door Dash person, a plumber. I mean, the list just goes on and on,” Hurn says.
When Hurn discussed the idea for the tax refund loan with the board of directors at Community Bankshares, at least one other selling point also came up.
“Part of the reason why we were attracted to this program is not just because of the audience and what we could do with the audience going forward, but also because it felt like there was inherent risk mitigation here,” Hurn says. “We’re used to dealing with the federal government as our counterparty, whether it’s the SBA or USDA. In this case, the counterparties are the IRS and Treasury. And it just it felt like that was a similar risk profile for us.”
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Marketing Tax Refund Loans to the Self-Employed
Because refund anticipation loans have been controversial in the past, Hurn says his team works only with vetted affiliate partners and avoids aggressive marketing tactics.
“That’s really important to us, because we expect to be standing long after this program is over and doing a lot more with this audience,” Hurn says. “So we want to make sure that, you know, we acquired them in a legal, moral, ethical and compliant way.”
The partners, in turn, have worked with what Hurn describes as “enterprise affiliates” to increase awareness of the tax credit. “So these would be corporations that have a large workforce of contract workers, or maybe a large accounting software firm, which I don’t think I can actually refer to their name publicly,” he says.
Some of the affiliates did use digital advertising or have ads on podcasts or in subways.
“Like all marketing, it’s a lot about education,” Hurn says, pointing out that this particular pandemic-era program “has not gotten a fraction of the national media lift” that accompanied the Paycheck Protection Program, or PPP.
“This is the least-known tax credit that I’m aware of. I didn’t even know about it before this.”
— Chris Hurn, president and CEO of Community Bankshares
The most common reaction from borrowers? Skepticism.
“The thing that we hear the most is, number one, ‘Is this legit? How can this be?’ You know, we’re so many years past the pandemic,” Hurn says.
Sending links to information about the tax credit on the IRS website usually helps reassure the skeptics, after which they can pursue the tax credit on their own or use Lendesca’s platform.
Like a lot of government programs, this one is complicated to navigate, Hurn says. So even some accounting firms are directing people to Lendesca.
“I have only uncovered a couple of accounting firms in the industry over the last 9 or 10 months that even knew what this tax credit was — which speaks to how buried some of these things are and how difficult they can be,” Hurn says. “The irony is, we have a number of accounting firms who are now affiliates of Lendesca, sending their clients to us specifically for this tax credit to process it for them.”
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Maybe a Little Bit of Future-Proofing Too?
Hurn appreciates that the tax credit allows his 140-year-old bank to connect with the modern workforce in a meaningful way.
“The reality is we live in what people call a gig economy. It’s very common for people to have multiple jobs these days,” he says.
“We had one applicant who was a nurse by day and an Uber driver at night,” he adds. “She said she just loves to drive, and it clears her head at night, and she might as well get paid for it.”
Hurn is eager to support customers like her. So he sees the tax refund loans not as some oddball standalone program, but a fitting extension of what Community Bank & Trust already does. “Our mission is to help underserved small businesses, and that’s exactly what these self-employed individuals are,” he says.
