Lending in the Time of COVID-19

From the very beginning of the COVID-19 crisis, when it became clear that the U.S. would have to follow the same restrictive quarantine protocols of China, Italy and other countries in order to mitigate the pandemic as much as possible, banks, lawmakers, and regulators have been trying to stay ahead of the inevitable negative impact to the economy. Within two weeks of the quarantine, Congress passed emergency acts to direct funds to small business, keeping American workers employed as much as possible, and prop up the economy during the crisis. After a month of navigating these emergency acts, and entering the second wave of economic stimulus in the last week in April, it has become clear that the success or failure to provide the intended result relies as much on banks supplying the loans as it does on the lawmakers providing the money. So, how are banks doing?

How’s It Going?

A jolted stock market, the need to implement emergency work contingencies, and government relief programs have equaled not only financial, but also operational uncertainty. But to make a fair determination on how banks are handling the crisis, it’s important to understand the scope of what’s out there, and recognize there’s more to come. The CARES Act, which included emergency funds for loans meant to keep American workers of small businesses employed with the Paycheck Protection Program and enactment of the Fed’s emergency lending powers for larger businesses, provided some $2.1 trillion through loan programs, individual rebate payments, and tax relief—an incredible amount of money that would be in high demand in a short period of time.

While the early days, and the early coverage, of the programs focused on the issues—system outages, rule changes, process lags, liability questions—all things considered many banks found a working rhythm within the program in an impressively short amount of time, lending out “14 years’ worth of loans” in a matter of 10 days, only stopping because the program ran out of money. And with a fresh infusion of funds slated for the last week in April, it’s anticipated the second round will go much more smoothly with important lessons learned carried over from the first wave.

The Common Denominator of Success

Commercial banks, in large part, rely on small business for a large source of income, so being able to assist their client base in securing funds appropriated under the CARES Act was not only good for the economy, but also good for building their client relationships by helping them thrive even in a time of crisis. For the most part, every bank that was able to deliver an excellent client experience through the process had an important common denominator—updated, digital processing capabilities and a technology partner able to work with them closely to deploy that tech in the most efficient way possible.

While the economic fallout of the pandemic has prompted a re-examination of business goal and plans, most banks with funds earmarked for technology transformation in the coming year are keeping that funding where it is. And many banks who were on the fence about spending the capital on new technology are now trying to find a way to fit it into their plans as quickly as possible. As one bank put it recently “this pandemic has highlighted in technicolor the importance of a digital transformation.”

What Now?

Technology and information are proving to be the true differentiators in predicting success and delivering a client experience that will solidify relationships through and beyond the current crisis. It’s important to work closely with your technology partner to understand how to use your systems efficiently and effectively. It is equally important to stay informed of the latest issues and changes in the stimulus programs affecting banks and their clients. And, finally, it’s important to recognize that having a real-time, digital platform in place may be the critical key to surviving the next crisis.

For the latest in COVID-19 news and updates on how AFS can assist, please visit our COVID-19 page.