COVID-19 has disrupted our communities and cost us greatly, but it has also breathed new life into our sense of community and improved how we communicate and work together. Banks are no exception; they are a great example of acting fast to serve their communities.
As a part of an unprecedented effort to protect small businesses, financial institutions have adapted quickly to facilitate the disbursement of Paycheck Protection Program (PPP) loans, but more can be done. While PPP loans and the CARES Act will be helpful to keep people employed, such short-term cash infusions have limits. Financial institutions should be thinking about what happens to their customers when relief options run out and revenues haven’t normalized.
One option for banks is to expand their footprint in the community and drive demand to small businesses by offering affordable consumer financing options to consumers through their SMB customers to generate long-term cash flow opportunities.
Banks are drivers of local business growth both in times of prosperity and uncertainty; they are well-positioned to fulfill their responsibility of helping communities rebound from this pandemic too. Business owners and their employees are hurting and entire sectors of the economy are threatened as shelter-in-place orders remain mandated in many areas, with few signs of a sense of normalcy returning any time soon. According to a recent Goldman Sachs survey, half of small businesses said they would only be able to operate for up to three months in these conditions.
Despite the current economic challenges, there are market segments showing signs of new activity. For bankers, the question soon shifts from how to efficiently process PPP loans to “How do I continue to build on the relationship with my customers to help them accelerate out of this downturn?” Banks can take a leadership position by not only providing capital to help companies rebound and rebuild, but also give them the tools they need to monetize new opportunities and experience improved cash flow.
Offering credit to consumers when they need it is more important during times of financial uncertainty. Surveys suggest that up to 75 percent of Americans earning less than $50,000 annually live paycheck to paycheck. One-fifth of those making more than $100,000 do the same, according to Willis Towers Watson’s Global Benefits Attitudes Survey. It also found that more than a third of workers could not come up with $3,000 in an emergency. So, what happens when there’s an unexpected expense like a major car repair, or if the AC goes out during a 95-degree summer day? That’s when a bank should be ready with the tools needed to assist with financing.
Consumers need access to credit at reasonable rates quickly, but many banks are not prepared to meet those needs with their current offerings. By leveraging fintech partnerships for value-add technology and creative solutions, banks can innovate rapidly to meet the future needs of businesses and consumers. Banks can enable their small business customers to be the face of financing with digital tools, thereby fulfilling the consumer’s borrowing need while also equipping the merchant to monetize new opportunities.
This potential isn’t limited to Americans living paycheck to paycheck – higher net worth households are also keen to take advantage of smart loan rates. These individuals are savvy with how they invest and are open to low-cost loans. The same can be said for retiring Baby Boomers. Financial institutions can use this opportunity to help them make the most of alternative assets and borrow when it’s more appropriate.
COVID-19 has pushed the limits and challenged traditional banking models. As America starts to rebuild its economy, offering point-of-need financing should become a priority. Community banks have the power to regrow America, starting with our nation’s 30.7 million small businesses. Modern consumer financing can stimulate demand for these products and services, and access to real-time payments can put funding to work.
Banks have proven they are capable of being highly responsive to meet needs during this pandemic and can be of much greater value to small businesses by helping them drive demand for their goods and services. This is an opportunity to reinvest in local communities, grow market share, and think differently about the value they can provide for their business customers.