Unlocking the Potential of Small Business Lending

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Community banks have long played a pivotal role in supporting small businesses, providing the necessary capital for local entrepreneurs growing or expanding their ventures. It is estimated that community banks account for approximately 60% of small business loans, according to the Independent Community Bankers of America.

Despite their essential role, many community banks still operate with traditional, manual processes, missing out on the efficiency-enhancing benefits of technology. Approximately 80% of community banks with assets under $5 billion do not utilize a commercial loan origination system provider. However, embracing technology can be a game-changer for community banks looking to reduce lending costs, enhance efficiency and expedite the delivery of capital to small businesses.

One of the key factors in small business lending is speed. For small and medium-sized businesses, or SMBs, efficient access to capital can often have a dramatic impact on operations. These businesses often manage their cash flow strategically; delays in securing funding can have serious consequences. The time from application to funding is critical for SMBs, meaning community banks must continue finding ways to reduce this end-to-end turn time.

While the traditional relationship-based model of community banking remains invaluable, integrating technology into lending processes can be a win-win for both banks and their customers. Here are three steps that community banks should consider to drive efficiencies in their lending processes, even if they are not yet ready for a full-scale commercial lending platform.

1. Consult Your Team
The first step in any innovation journey is to consult your bank’s internal experts. Engage your lending and credit teams to identify pain points in the lending process and how technology and automation could alleviate these challenges and enhance efficiency. Often, those on the front lines of lending have valuable insights into where improvements can and should be made.

2. Embrace Platforms
While a full-fledged loan origination system may not be immediately necessary for your institution, community banks can benefit from platforms that streamline the financial document collection process and client communication. These solutions can make it easier for customers to securely upload and submit their financial documents and communicate directly with the bank, which can simplify the initial stages of the lending process. These tools can have the added benefit of assisting credit teams in digesting and spreading financial data, reducing the time needed for manual data entry and analysis. This accelerates the lending turnaround time and provides a better overall experience for customers.

3. Augment Your Credit Teams
We often see the main challenge for banks trying to speed up the lending process isn’t the technology but their resource constraints. During periods of staffing shortages or high demand for loans, community banks can consider leveraging external pools of subject matter experts to supplement their in-house teams. These experts can help banks expedite lending decisions, providing the necessary labor around financial spreading and the resulting narratives, which can help ensure that businesses get the capital they need promptly.

Community banks are the lifeblood of many small businesses, offering not only financial support but also personalized service and relationships. While the traditional community banking model remains vital, embracing new technology and innovative solutions is essential to meet the evolving needs of small businesses. By taking these steps to improve lending processes and reduce turnaround times, community banks can continue to serve as crucial partners for small and medium businesses, helping them thrive and contribute to local economies.

Compliance Success Following the Small Business Lending Rule

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The Consumer Financial Protection Bureau finalized its 1071 rule at the end of March 2023. Financial institutions can soon expect an unprecedented level of scrutiny around data collection and reporting.

The 1071 ruling is a top regulatory compliance concern expressed by executives, surpassing even Bank Secrecy Act and anti-money laundering rules and obligations associated with the new credit loss standard. It serves two main purposes: it more strictly enforces fair lending laws by providing tracking of small business credits, and it enables creditors to more accurately identify and support women and minority-owned business needs within their communities.

This additional level of regulatory oversight presents unique challenges for banks that will need to implement system and staffing changes in the 18 months following the announcement.

The next steps are deceptively simple but banks must adhered to them in order to create successful systems, procedures and facilitate scalability after the rule goes into effect.

Familiarize and Analyze
First, bankers must determine whether their institution is covered under the 1071 data collection rule. If your bank has originated at least 25 credit transactions to small businesses in the 2 preceding calendar years, you will likely be beholden to these new regulations. If you are unsure whether you qualify, it’s recommended to err on the side of caution.

After your bank determines that it’s subject to the new regulations, it is imperative to become aware of the things you can and cannot ask borrowers in accordance with 1071. Analyzing efforts must include reviewing all small business loan portfolios — things like credit lines, credit cards, merchant cash advances and loans — and creating detailed reports for businesses that will be impacted by the new ruling.

Determine Procedures and Data Collection Standards
A main indicator of success is data integrity. To ensure data integrity, a bank’s policy must include detailed procedures with marked responsibilities and a comprehensive understanding of the institution’s compliance goals by all staff members.

In order to collect strong data, banks may need to implement a robust collection system. Not only must they include loan numbers, types, purposes and pricing in a borrower’s portfolio, they need to include data specifically related to credit, as well as applicable demographic data points. This means training staff in these new procedures, which takes significant amounts of time and money. Institutions predict they may have to double their staff — which on its own does not guarantee the quality of data will be consistent.

One option leaders have are leveraging efficient machine learning systems to stay ahead of the curve and produce quality data while reducing staffing costs.

Automate to Improve Outcomes
Though the 1071 ruling will include starter tools like sample tracking sheets, data integrity will become even more difficult for banks to maintain over time. Manual processes that require human review are prone to error; decreased data integrity will impact any bank’s ability to successfully navigate regulatory reviews and audits.

Deana Stafford is a senior vice president and director of CRA and Fair and Responsible Lending at First National Bank Texas, the community bank unit of Killeen, Texas-based First Community Bancshares. Stafford’s colleagues already use automation to help scrub date related to the Home Mortgage Disclosure Act. Now, with the 1071 regulations, automation is on Stafford’s mind.

“We have already added one full-time staff, citing 1071 and the expansion of CRA data collection and reporting after reading the rules, but there is no way we can double our staff,” says Stafford. “Automation is the best long-term solution.”

Third-party tools that specialize in compliance systems and mitigating risk are the solution. Automation can easily find, consolidate and track the over 30 reported data points under the new rule, and is key to banks efficiently using both staff and resources. Verifying income and extracting data from verified documents can be done by a machine learning system that is embedded into existing digital onboarding infrastructure at a pace much faster and more accurate than a bank employee. Machine learning can shrink labor costs, increase lending capacity and guarantee data integrity; automating monotonous and time-consuming processes is the next logical step toward optimization in the financial industry.

The final 1071 rule is top of mind for financial industry professionals. Leaders must take a close look at their systems and make plans that allow them to stay competitive and compliant. Institutions must invest in intelligence systems to achieve fair lending compliance standards. Addressing current and future compliance issues with automation is the most effective way to avoid skyrocketing time and labor costs.

Why Small Business Clients Need Digital Options

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One of the biggest pain points a small business client faces is the time required to apply for a loan or line of credit. Banks can solve this problem by digitizing their small business lending process, and in doing so, they can also reach a broader swath of small businesses, says Steve Allocca, CEO of Funding Circle. Whether a bank chooses to digitize all or part of its small business lending process, leverage emerging technology can make borrowing easier and more accessible to small businesses.

Topics discussed include:

  • Improving Convenience
  • Fully Digital vs. Hybrid
  • Data Privacydo

Showing Up for Small and Medium Business Customers

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For many small and midsized business (SMB) owners, navigating finances feels overwhelming amid inflationary and recessionary threats and uncertainty spurred by high profile bank collapses. Their customers are increasingly demanding digital services, which puts the financial burden on these businesses to acquire data-driven technology to satisfy customers and gain market share — without breaking their budget.

Can banks deliver this to their small business customers without losing the personal service they love? Absolutely! It starts with banks examining their technology stack and scrutinizing how they show up for SMB clients.

There are 33 million small and medium businesses, according to the U.S. Chamber of Commerce. But only about 33% of these businesses feel like their primary financial institution understands and appreciates them, according to data published in Forbes; the Federal Reserve found that fewer than half say their credit needs are being met.

“While this isn’t a new opportunity, it is growing, thanks in part to big banks capturing clients and then underserving their needs,” said Ryan Sorrels, Chief Operating Officer at Nymbus.

In a time of financial uncertainty, client-centric banks are examining their current tech offerings and ramping up ways to partner in their success. Is your financial institution ready to tackle these best practices?

Invest in Tech Tools to Fuel SMB Success
Recent data indicates that 41% of SMBs are looking to use digital banking services. They need the infrastructure for their customers to buy from and engage with them digitally; at the same time, they have to acquire tech to make data-driven marketing and business decisions. Banks can relieve the pressure on both ends for SMBs. Banks with a tech stack tailored for SMB needs can partner in their success by helping to grow their market share and revenue, which increases their deposits and transactions.

Locality Bank, based in Fort Lauderdale, Florida, is an example of a community bank that delivers digital banking solutions for local businesses. Through their online tools, Locality Bank gives South Florida businesses options to open accounts, communicate with the banking team and manage cash flow in one place.

“We’ve taken a fresh approach to community banking that has been underserved for far too long,” explained Locality Bank Cofounder and COO/CTO Corey LeBlanc. “The technology we have in place enables us to be hyper-focused and adjust on the fly to best serve our customers.”

Dallas-based Comerica Bank is another institution that leverages its tech stack to help SMBs gather industry-specific market data. Through its free online tool, SizeUp by Comerica, SMB owners can get insights like local consumer spending data and how they rank against competitors.

“We are dedicated to helping small businesses reach their goals,” said Omar Salah, Comerica Bank’s director of small business banking. “This resource has the ability to make a significant impact on the growth trajectory of small businesses and aspiring entrepreneurs across the country.”

Advocate for Stability and Growth
In an uncertain economy, SMB owners need reassurance that their banks are in their corner and financially sound. The Harris Poll reports that about 25% SMBs have considered moving their accounts to a different bank in the wake of the SVB and Signature Bank collapses.

Is your bank feeling this strain? Think about how your institution can show up as an advocate to fuel SMB owners’ confidence in growth steps in an uncertain economy.

Citizens Bank of Edmond is a great example of this. Having served its Edmond, Oklahoma community for 120 years, launching SMB growth opportunities such as a coworking space, extended bank lobby hours and the first “bankerless” bank in their market, which offers on-demand rolled coin machines and deposits — a much-needed service for local restaurants, bars and cafes.

“While [Silicon Valley Bank] had over 90% in uninsured deposits, Citizens Bank of Edmond has just 9%,” said Jill Castilla, CEO of Citizens Bank of Edmond. “Our bank has on-balance-sheet liquidity to meet every cent of our uninsured depositor balances.”

Small businesses with strong banking relationships experience better loan terms and higher credit availability. Just as the local coffee house knows your order before you get to the counter, community banks have a history of knowing what their customers need to thrive.

Now is the time to lean into your bank’s legacy of transparency, stability and customer-centric communication. And at the end of the day, helping small business owners find their path builds confidence in your bank’s role as a reliable long-term partner.

Evening the Score for Small Business Lending in a Down Market

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Small and medium-sized businesses (SMBs) are vital components of our local communities, yet they often face difficulties accessing the capital they need to operate. At the same time, community banks want to support their local SMBs but may hesitate to underwrite small business loans, especially for small dollar amounts.

All this is compounded during times of economic stress and uncertainty. The knee-jerk reaction of most banks is to tighten their lending standards and narrow the credit box — no surprise, given that banks historically face challenges in providing small dollar financing, even in the best of times. The reasons for this are myriad: on average, small loans tend to have a loss rate that is double the rate of larger loans, climbing even higher during bad economic times. Operating costs for small dollar loans are also an issue, as most lenders must scale down these costs by more than six times on average to achieve the same efficiency as their larger loan products.

So where can bankers and SMB owners find a balance that works for both? For banks, it is about balancing credit risk parameters while providing needed liquidity to small businesses in their communities. That work begins with access to richer data sets paired with newer, better expected loss credit models specifically designed for the challenges of small dollar small business lending. This level of intelligence can help bankers make more informed credit decisions faster, potentially reaching more borrowers and growing loan portfolios, even as competitors curtail their own lending programs.

The Limitations of Traditional Credit Scoring
While FICO scores are important and proven tools, the bulk of their data is still geared more towards individuals rather than businesses. Business bankers should leverage new alternative credit models that offer a better analysis of expected loss for SMBs and significantly better insights to support small dollar lending. Used in conjunction with traditional FICO/SBSS scoring, this new model enhances the credit view for banks and offers information well beyond the behavioral score, including macroeconomic, business, franchise and other important data.

An expected loss model is an additive component of a bank’s credit decisioning and augments other existing, traditional data sources to offer a much more comprehensive view of the borrower. This helps bankers better mitigate risk and provides further insights that could support an expansion of a bank’s existing credit risk appetite.

Incorporating both consumer and business credit data that is enhanced by other relevant economic and business factors, banks can gain a much more complete picture of their potential small business borrowers beyond the consumer credit score alone. Often, SMB borrowers with similar consumer credit scores can present vastly different risks that may not be easily seen, even within the same area or industry.

For example, two restaurant owners may appear very similar in terms of risk just looking at their FICO scores. However, a deeper view of the data may show that one has been operating for over 10 years in an metro area with low unemployment, while the other has been in business for less than a year in a city currently experiencing much higher unemployment rates. Likewise, differing FICO scores might not tell the whole story. A business owner with an 800 score may be in a more volatile industry or located in a city with extremely high unemployment or poverty rates, while an owner with a lower score may be experiencing the opposite.

Additionally, this enhanced data approach can help banks more effectively meet lending and/or financing mandates tied to environmental, social and governance (ESG) values, as more robust data enables banks to better reach underserved borrowers who may not meet traditional/standard FICO criteria. This has the potential to open up new markets for the bank.

Successful SMB lending does not end at origination, however. This richer data provides bankers with enhanced risk management capabilities over time, allowing them to continuously monitor their lending portfolios as they move forward or even run them on a “look back” basis. Banks can leverage technology solutions and platforms that offer advanced analytics and predictive modeling capabilities to better manage their small business lending portfolios to achieve this. These solutions can help banks detect early warning signs of potential defaults or other risks, allowing them to take proactive steps to mitigate those risks before they become larger issues.

Small and medium-sized businesses play a critical role in local economies; supporting their growth and success is essential. Leveraging new credit models and richer data sources allows banks to more effectively manage the risks associated with small dollar lending and expand their lending programs to reach more underserved SMBs in their communities. Doing so allows them to help level the playing field and provide much-needed liquidity to these businesses, enabling them to thrive even in challenging economic conditions.

The Big Opportunity in Small Business Lending

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In the years following the financial crisis of 2007-08, bank lending to small businesses slowed considerably, due in large part to the economic fallout and new financial regulations. At the same time, nonbank lenders began to rapidly fill the small business lending void left by banks struggling with their own risk appetites and new regulations.

According to recent research, 32% of small businesses applying for loans today do so through nonbank lenders, up from 24% reported in 2017. This data seems to suggest a significant and accelerating shift in how small businesses seek access to capital. It also highlights a significant opportunity for today’s community banks to retake small business lending market share.

Bankers are risk managers by nature, which often leads them to shy away from small business lending that is sometimes seen as riskier, especially in times of economic stress. Community banks may also lack the proper technology to efficiently process these transactions and achieve the necessary return on investment. Banks are cash flow lenders; for the most part, they prefer to spread financial statements similarly to as they do with their larger, more profitable CRE loans. This entails extracting and organizing data from borrowers’ financial statements and tax documents into a bank’s overall financial analysis system, which enables the institution to make better, more accurate credit decisions and identify risks.

However, spreading financials on small dollar business loans drastically reduces or eliminates profits. Moreover, most banks lack adequate credit data for their small business customers. Many banks hesitate to lend based solely on information from FICO or FICO Small Business Scoring Service , as they sometimes do not accurately assess business risk or repayment ability.

In response, small businesses have increasingly turned to nonbank lenders that provide a frictionless experience with end-to-end technology. Additionally, this robust technology also tends to provide a better customer experience and a much faster loan approval process.

Some nonbank lenders have also leveraged new or alternative data and scored loan models. This allows them to serve many previously marginalized or ignored business owners. Luckily, today’s community banks can leverage similar models and help expand financial access for many underserved borrowers in their local communities, reaching untapped markets while still properly managing risk.

With over 33 million small businesses in the United States, there is a tremendous opportunity for community banks to take back market share and capitalize on their relationship business model. Bankers should evaluate modern lending platforms that support an end-to-end process to optimize efficiencies and provide a positive customer experience — and do so cost effectively. Additionally, data and scoring models that are designed to support small dollar lending provide community banks with an opportunity to quickly expand their small business lending portfolio while meeting customer needs and mitigating risk.

Community banks are perfectly positioned to leverage their relationship business model and grow small business lending. Small business owners should have the choice of working directly with their local bank. Small business lending provides community bankers with a new revenue opportunity, a diversified loan portfolio and access to additional deposits. As nonbanks continue to disrupt small business lending, it is essential for bankers to modernize their small business lending technology and strategies to capitalize on this untapped market.

A Battle Plan for Successful Small Business Lending

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Community banks that are considering entering the small business lending space are already challenged by several barriers to entry:

  • Inefficiencies in traditional loan processing.
  • Changing regulatory guidance.
  • The belief that small business loans are not profitable.
  • A lack of quality lending opportunities to put their deposits to work.
  • New competition from emerging categories, including fintechs, challenger banks and neobanks.

Given these obstacles, it’s not surprising that many community financial institutions have chosen to steer clear of small business lending — but there is a solution powerful enough to overcome all of these obstacles. This solution allows community financial institutions to profitably offer small business loans that are efficient, convenient and compliant. And that is the power of a digital loan platform.

Digital lending platforms leverage end-to-end, cloud-based technology to automate the entire lending process — from application and underwriting to set up, review and renewal. Banks gain the competitive muscle to provide small business loans efficiently, quickly and profitably.

Here is our 12-part battle plan for small business lending victory:

1. Save Time and Cost
A turnkey platform is automated, reducing the lengthy manual processes involved and eliminating the need for additional loan officers. It costs significantly less to originate each loan, even the smaller loans.

2. Automate Booking
A good digital platform gives banks the ability to import loan files directly into the core to book and fund the loans. It should also integrate with numerous third-party systems to automate booking and funding the loan.

3. Expand the Pipeline View
The platform should offer the analytics and the ability to track how many people are viewing, starting and completing a loan application, so you can do a better job forecasting the week ahead.

4. Use a Dynamic, Intelligent Application
Digital applications usually employ a rules engine to guide the borrower through each step and identify exceptions or incomplete sections. The best platforms will recommend the most appropriate types of loans or redirect users to other channels.

5. Your Underwriting Policy
A digital platform will use your institution’s specific underwriting standards for each specific loan product. It will not force adoption of its own embedded underwriting standards.

6. Track Loan Status
A platform can give bankers better visibility to the stages that have been completed at each step of the process, helping to facilitate cross-departmental communication and accelerate the loan’s processing time.

7. Renew and Review
For a bank’s existing portfolio, a digital platform will automate the collection of data, send communications to borrowers and provide a dashboard view of annual renewals or interim reviews, reducing time and cost by as much as 50%.

8. Automate Financial Analysis and Spreading
Cloud-based software solutions eliminate the need to manually spread deals. The lending cycle becomes more productive, since applicant qualification is determined in seconds.

9. Manage Documents Effortlessly
All documents should be housed in one central location. This creates a user-friendly portal for both the customer and lender, where all materials can easily be collected, requested, shared, processed and tracked.

10. Maximize Loan Volume
Not only can a digital, automated system increase the profitability of each loan, but the bank will be able to dramatically increase loan volume. A digital application is like having an army of loan officers at the ready 24/7.

11. Aggregate Data, Minimize Risk
Digital technology collects and aggregates all of the data a financial institution needs to decide on a loan, then compares that data to its unique credit policy and risk rating metrics.

12. Utilize Third-Party Data and Analytics
Any digital platform should be integrated with the industry’s leading third-party sources to access necessary information more efficiently, such as small business credit data, tax records, regulatory and compliance updates and more.

Eight Questions For Prospective Small Business Lending Partners

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For many banks, the ability to offer small-business loans efficiently, quickly and compliantly has been more of an aspiration than a reality. The technical, financial and staffing obstacles involved in launching small business loan products have created daunting barriers to entry, while the need for small business credit persists in the post-pandemic economic recovery.

This creates a fertile breeding ground for new fintechs that claim they can streamline loan processing time, increase the profitability of even the smallest loans and improve the entire experience for banks and their customers.

But how can you distinguish between achievable goals and lip service? Bank executives need to ask the right questions to break through the noise and get real, honest answers. As a provider in the space, we spend countless hours researching the competition, talking with banks about their challenges and enhancing our small business lending platform. Here are the top eight questions to ask a prospective partner when considering a small business lending platform.

1. Is there a white-labeled borrower website option that can be branded with the bank’s colors, graphics and messaging?
It takes years to establish a well-known brand identity that your customers recognize and trust. It is crucial that any prospective loan origination platforms have the capability to incorporate bank branding, corporate color palette and distinct messaging to create a seamless experience for customers.

2. How much time does it take for business borrowers to complete and submit a full loan application?
Research shows that one of the top complaints of business borrowers is the amount of time it takes to complete an application. Any digital process will certainly be quicker than a manual method, but every step of the application process should be optimized for efficiency, resulting in a fully submitted loan application within 20 minutes or less.

3. Is the application process straightforward and intuitive for the borrower and back-office team?
We mentioned the importance of an efficient application, but efficiency can only be achieved if the application is clear, intuitive and guides users along the way. Ask potential vendors how applicants and the bank’s back office can track their progress through the application, and whether the system has measures in place to identify and alert the applicant to inaccurate or incomplete entries. It is also important that FAQs are prominently displayed, and that users have easy access to support.

4. Are there methods in place to ensure that borrowers are selecting the right loan product?
Your applicants don’t know your products as well as you do, so rather than asking them to select a loan product, a top-tier platform will incorporate an automated, intelligent “rules engine.” This type of technology gathers pertinent information throughout the application process and selects the most appropriate product(s) based on the applicant’s inputs. This streamlines the application for the borrower and saves your staff valuable time and resources.

5. Does the system help identify and filter out unqualified applications?
Once the borrower starts the application, the rules engine should activate, dynamically collecting data points to ensure that the application is meeting the bank’s specific product requirements. Further, it should also evaluate the data against the bank’s credit policy to verify the applicant meets the minimum acceptance criteria. The best loan platforms will identify such issues and prevent the applicant from progressing by redirecting them to a different page, product or contact method.

6. How does the system ensure compliance and security?
Ask a potential vendor whether their system supports all federal regulations that impact small businesses and lending practices, such as Know Your Customer/Know Your Business, anti-money laundering, Americans with Disabilities Act and web content accessibility guidelines , among others. The best systems will incorporate a bank’s credit and risk policy into the platform, so there is no impact to your bank’s risk profile with the regulators. Ask whether the system utilizes 24/7 monitoring to ensure the integrity and safety of bank data, whether they are SOC 2 compliant and whether they undergo regular third-party audits of their infrastructure and systems.

7. How does the system ensure quality control and prevent fraud?
Advanced loan technology should integrate into numerous background check sources and employ digital fraud detection using AI-powered captchas and two-factor authentication, among others. Specific criteria should immediately disqualify borrowers, such as zip-code, signing rights and industry type. The best systems will ensure that exceptions are identified and shown to the bank, so your staff doesn’t waste time trying to find them.

8. Does the platform provide automated document management?
Secure, efficient document management is one of the most critical functions of digital loan technology. Ensure that all documents are securely uploaded in transit and at rest. Here are just a few of the features an advanced platform should offer:

  • A centralized document library housing all documents.
  • The ability to collect any necessary form at the right time and have it electronically signed.
  • Functionality that allows the lender to easily approve, reject or request individual documents with explanatory notes for the borrower.
  • Protection of personal information by restricting the viewing of information to only the individual who owns it.

The Community Bank Advantage to Helping Small Businesses Recover

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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.

How One Small Player Beat Out PNC, Wells Fargo and M&T for PPP Loans

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Banks took center stage in the U.S. government’s signature pandemic aid package for small businesses, the Small Business Administration’s Paycheck Protection Program.

But into year two of the program, a nonbank has emerged as one of the top three PPP lenders. The SBA listed Itria Ventures, a subsidiary of the online commercial lending platform Biz2Credit, on Feb. 28 as the No. 3 lender in dollar value in 2021, after JPMorgan Chase & Co. and Bank of America Corp. Not only that, it was the No. 1 lender, of the top 15, in terms of total loans approved. Itria Ventures was the direct lender for 165,827 approved loans in 2021 worth $4.76 billion. Unless Congress extends the program, it runs through the end of March. The SBA updates PPP statistics every Monday so the ranking could change.

As of Feb. 28, the SBA approved $678.7 billion in low-interest PPP loans this year and last year. The potentially forgivable loans have created enormous opportunities for banks to connect with small businesses and allowed financial technology companies to make inroads into the commercial loan market.

But the significance of an obscure-sounding online marketplace lender surging past the likes of household names such as PNC Financial Services Group, M&T Bank Corp. and U.S. Bancorp for PPP dollar volume and loans wasn’t lost on Joel Pruis, a senior director for Cornerstone Advisors.

“The PPP gave a much-better opportunity to these fintech companies to get involved and it gave them the volume,’’ he says. “Prior to this, it’s been tough for them to get any type of material volume.”

During the pandemic, small businesses such as restaurants and retail shops that rely on fintech lenders fell on tough times, hurting platforms that then experienced double-digit loan delinquencies in some cases. OnDeck, a prominent online lender valued at about $1.3 billion during its initial public offering in 2014, sold to Enova International last year for about $90 million. Online direct lender Kabbage sold most of its operations for an undisclosed sum to American Express Co. last year.

Biz2Credit received some negative press last year as a merchant cash advance lender that sued some of its New York borrowers struggling during the pandemic. But the company is moving away from merchant cash advance products because the customers of those loans are small businesses struggling the most right now, such as restaurants, says Biz2Credit CEO and co-founder Rohit Arora.

Biz2Credit, which is privately owned and doesn’t disclose financial information, pivoted last year to quickly ramp up its PPP lending platform and partnerships, hoping to capitalize on what Arora anticipated would be a huge government rescue package. It generates business through referrals from the American Institute of Certified Public Accountants and its relationship with payroll provider Paychex, which has strong connections with small businesses.

It also white-labelled its PPP platform to banks and other lenders to process small business loans without the hassles of the paperwork and monitoring. Among its customers are major PPP lender Portland, Maine-based Northeast Bank, the 11th largest PPP lender in terms of dollar value as of Feb. 28.

Other technology companies seeing a surge in business due to PPP include Numerated, which provides a commercial loan platform for banks. Numerated processed nearly 300,000 PPP loans for more than 100 U.S. lenders, totaling $40 billion as of March 1. Cross River Bank, a technology-focused bank in Fort Lee, New Jersey, that works with fintech companies to offer banking services, also rose in the ranks of direct PPP lenders this year. The $11.8 billion bank ranked fifth with $2.5 billion in PPP loans.

Arora says the SBA’s constantly changing documentation, error codes and program rules were a headache for a bank but fit into Biz2Credit’s area of expertise as a technology company. It provided banks with one platform for both PPP origination and loan forgiveness, simplifying the lending process. Given the amount of work involved, Pruis says banks that chose to handle PPP lending on their own platforms have had a tough time, especially in the program’s first round of the loan program. “It was brutal,’’ he says.

Arora says Biz2Credit is perfectly suited for PPP for another reason: Most of its loans go to very small businesses, many of them sole proprietorships or operations with fewer than 20 employees.

These borrowers often don’t have a business banking relationship, pushing them into the arms of online lenders or small banks.

Small businesses have been especially hard hit by the pandemic. The Federal Reserve’s Small Business Credit Survey for 2021 found that 53% of respondents in September and October of 2020 thought their revenue for the year would be down by more than 25%. Of the 83% of firms whose revenues had not returned to normal, 30% projected they would be unlikely to survive without additional government assistance.

“This recession has been brutal for small business,’’ Arora says. “It’s a much-worse recession than the last one for small business.”

Top PPP Lenders for 2021 PPP

Rank Lender Name Loans Approved Net Dollars Average Loan Size
1 JP Morgan Chase 81,430 $6,048,741,297 $74,281
2 Bank of America 87,696 $5,339,101,618 $60,882
3 Itria Ventures LLC 165,827 $4,756,975,303 $28,686
4 PNC Bank 28,633 $2,877,088,585 $100,482
5 Cross River Bank 106,086 $2,511,524,537 $23,674
6 M&T Bank 15,507 $2,044,126,456 $131,820
7 Zions Bank 16,593 $1,982,086,510 $119,453
8 U.S. Bank 35,663 $1,914,171,309 $53,674
9 Wells Fargo Bank 44,861 $1,892,379,160 $42,183
10 TD Bank 21,833 $1,863,067,115 $85,333
11 Northeast Bank 17,255 $1,855,213,143 $107,517
12 KeyBank 14,791 $1,708,999,583 $115,543
13 Citizens Bank 26,544 $1,531,712,319 $57,705
14 Customers Bank 54,576 $1,405,437,610 $25,752
15 Fifth Third Bank 14,390 $1,333,769,118 $92,687

Approvals through 2/28/2021. Source: SBA