Community lenders, the essential resource for small businesses in the wake of CARES Act

Written by Mitch Lucas Head, Lending, Product Management & Compliance
Community lenders, the essential resource for small businesses in the wake of CARES Act

The COVID-19 pandemic is likely to have a long-lasting impact on the American psyche, threatening not only the country’s financial stability, but our way of life. Empty grocery store shelves, shuttered restaurant dining rooms and work-from-home edicts across the country have changed the bustling face of American business.

Long-term closures promise to take their toll on all, as jobless rates rise and unemployment claims soar. With so much shut down, the impact could be devastating for many SMBs that operate on a shoestring budget.

Across America, there are more than thirty million small businesses,i  according to the SBA. If just 10 percent were to close in the aftermath of the pandemic, the resulting loss of three million companies would send a shockwave across the country’s economy.

In response, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to minimize the impact of the COVID-19 pandemic. Included in the Act is the Paycheck Protection Program (PPP) designed to provide small businesses with support to continue to keep their workers on the payroll. With its low interest rate and forgiveness potential, the Paycheck Protection Program aims to sustain small businesses through this pandemic without burdening them with significant debt to pay off when the crisis has passed—and, in the process, its goal is to keep people in their jobs and stem the tide of unemployment nationwide.

As businesses bounce back from the impacts of COVID-19, commercial lenders will play a large role in their recovery. However, the slow adoption of digital capabilities by many financial institutions could hamper the ability of small- and mid-sized businesses to respond to their financial challenges, as an escalating number of loan requests will easily overrun manual processes and operations.

In this environment, community banks and credit unions can play a vital role in helping small businesses survive over the next eighteen months.

  • Support small businesses now: While many businesses, such as restaurants and small retailers, are able to continue serving customers on a limited basis, they are not generating the income required to support the business over the long term. One way that community banks and credit unions can help SMBs now is by using mobile banking apps and online portals to list those local entities that are open, as well as the services they continue to provide. Providing quick access to funding from the CARES Act through mobile friendly applications and streamlined electronic signatures will help ease the burden on borrowers.
  • Offer loan payment deferrals and fee suspensions: For struggling businesses, an offer to defer loan payments during the COVID-19 pandemic, with no fees or impact to the company’s credit score, can provide the relief necessary to keep the business in operation. Using a compliant loan document solution can ease the headache of constant regulatory updates and ensure you are providing borrowers accurate terms and conditions.
  • Be proactive: Much of the federal aid for small businesses in the government’s stimulus package will come through the Small Business Administration’s Paycheck Protection Program, supported by 1,800 community lenders.ii  To help SMBs remain afloat in this difficult time, community banks and credit unions should be leveraging their technology solutions and available data to understand risks so they can proactively communicate and update their customers.

For the information you need on the CARES Act and PPP lending, visit our webpage.

i  “2018 Small Business Profile.” U.S. Small Business Administration Office of Advocacy, 2018. Web.
ii  Amara Omeokwe. “Coronavirus Stimulus Plan Counts on Small Business Administration to Fund Recovery.” Wall Street Journal, Mar. 22, 2020. Web.

Written by

Mitch Lucas

Head, Lending, Product Management & Compliance

As Head, Lending, Product Management & Compliance, Mitch is responsible for driving the direction and strategy of Finastra’s consumer lending and loan compliance solutions.

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