While the Covid-19 vaccination rollout is progressing steadily and several portions of the country are making steps toward reopening and establishing a new normal, it is still too early to gauge how many small businesses will survive the pandemic’s impacts.
In a 2020 study of small firms by McKinsey & Co., it was initially estimated between 1.4 million to 2.1 million of the country’s 31 million small businesses could fail because of the events experienced in 2020 and 2021. However, a more recent report from the Federal Reserve revealed that bankruptcies during 2020 were not as bad as originally feared — with around 200,000 more business failures than average. Simply put, the true impact of the pandemic’s interruptions cannot be known until later this year or even next.
A PwC study on bankruptcy activity across the broader business sectors reveals which industries were impacted the most. Of the bankruptcies in 2020 where total obligations exceeded $10 million, retail and consumer sectors led the way, followed by energy and real estate. Together, these three sectors accounted for 63% of all bankruptcies.
Reimagining Small Business Success
While a lack of revenue has been the most critical issue for small business owners, they are also suffering from other challenges like a lack of time and guidance. Business owners have faced tremendous pressure to meet local and national guidelines and restrictions around interacting with the public, many even having to transform their business models to reach customers remotely. Such burdens often leave business owners meeting operational needs during nights and weekends.
This creates a timely opportunity for community banks to better support business customers’ recovery from this period of economic stress. Financial instituions can provide anytime, anywhere access to their accounts and financial tools, more-effective cash flow management capabilities and personalized digital advisory services to meet evolving needs. These tailored services can be supported with personal digital support to revitalize the service and relationships that have always been a competitive advantage of community institutions.
Putting Humans at the Center
A 2021 study by Deloitte’s Doblin revealed five ways financial services firms can support their business customers post-pandemic, including demonstrate that they know the customer, help them save time, guide them with expertise, prepare them for the unexpected and share the same values. These findings provide insight into how business owners prefer to bank and what they look for in a bank partner. In fact, 62% of small businesses were most interested in receiving financial advice from their financial institutions.
The Doblin study goes on to explore the activities that institutions can engage in to better serve the small business marketplace. Top findings included enabling an easier lending journey, investing in innovative, digital-led initiatives and offering personalized, context-rich engagement. These areas have been priorities for community banks, and the pandemic has accelerated the timeline for adopting a strong digital strategy. Compared to competitors including national banks, digital banks and nontraditional players, community banks are uniquely positioned to help local businesses recover by combining digital solutions with services that center the human connections within the banking relationship.
As business owners look to finance their road to recovery, it’s been repeatedly shown that they prefer a relationship lender who understands their holistic financial picture and can connect them to the right products, rather than shopping around. Business owners want a trusted partner who uses technology to make things easy and convenient and is available to talk in their moments of need. The best financial technologies strengthen human connections during the process of fulfilling transactions. These technologies automate redundant tasks and streamline workflows to reduce the mundane and maximize the meaningful interactions. When done right, this strategy creates an enhanced borrower experience as well as happier, more productive bank employees.
There’s a clear sense that the events of 2020 and 2021 will permanently shape the delivery of financial services, as well as the expectations of small business owners. The year has been a crisis-induced stress test for how technology is used; more importantly, how that technology can be improved in the months and years ahead. The pandemic, as challenging and destructive at it has been, generated a significant opportunity to reimagine the future, including the ways bankers and small businesses interact. Those community institutions that take the lessons learned and find ways to build and maintain human relationships within digital channels will be well positioned to serve their communities and succeed.