Since the Great Recession, larger banks have been cutting back their small business lending programs4 . In the intervening years between then and now, community banks have stepped in to account for a larger share of approved SBA lenders, with over 1,600 certified lenders in March when the pandemic hit. Almost overnight, the Treasury announced there would be an additional 5,000 SBA lenders1, mostly smaller banks, to assist small businesses in their time of need.
These new lenders and many of the existing ones had not been actively processing SBA loans, according to Charlie Potts, SVP and CIO of ICBA1 . Community bank lenders were caught flat-footed by both the need to process large numbers of complex PPP loans quickly and support the ever-shifting guidelines from the SBA. As a result, many community banks made the difficult choice early on to limit their PPP loans to existing customers for fear 2,3 that they would not be able to handle the volume in a timely manner. When this should have been an opportunity for smaller banks to expand their business2 and fulfill their commitment to serving the broader community, what went wrong for so many?
In the years leading up to the pandemic, many community banks have believed that personalized banking and digital transformation are in opposition to each other. This false choice has led to slow, piecemeal, and non-strategic adoption of automation technology. Big investments in technology, particularly automation and AI, were viewed as the province of large banks with endless budgets and no soul. Feeling the pressure from shifting client expectations, smaller banks had started to dip their toes in the automation pool with features like chat support, yet backend operations, particularly paperwork processing, remains stubbornly manual.
Fast forward to March of this year, when the SBA announced it would be processing PPP loans on a “first come, first served” basis, and the lack of technology-enabled, efficient processes caught up with banks that had underinvested in front-end or back-end operations, or both. Many banks have shifted entire departments to help current customers process the loans and a similar number will be needed to handle forgiveness requests5,6 . As a result, what could have been an opportunity to serve new customers instead became a nightmare where even existing customers were fighting for a place at the front of the queue.
But there is still a chance for community banks to leverage the agility of their smaller size to seize the moment and rethink their digital transformation strategy. Digital transformation is not just throwing a layer of low-grade chatbots between humans trying to solve complex problems like PPP loan and forgiveness processes. Instead, community banks should look to make investments in true automation technology for manual work across front and back end processes. This will unlock operational efficiencies and free up time for more high touch, personalized attention for customers, a core differentiator against the large national banks. Take the example of Minnesota’s Sunrise Banks, who quickly adopted paperwork automation technology to increase their ability to process PPP loans from less than 100 per day to almost 500 per day7 , thereby allowing them to extend their lending capabilities beyond their existing client base during the initial, critical weeks of the program.
There is no better and critical time for community banks to rethink their strategic investments in technology. The COVID crisis has condensed a decade of digital transformation into6 months and the trend is likely to accelerate. With this permanent change in the way of doing business and a period of economic volatility, the right kind of automation adoption will result in more opportunities and customers. And possibly make the difference between a thriving community bank and a shuttered bank.
Mang-Git NG, CEO of Anvil