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Lessons Learned from PPP for Business Lending Software

The scale of Paycheck Protection Program (PPP) lending forced old banking institutions to learn new tricks—including how to use new types of business lending software. Regional banks and credit unions competing with bigger lenders for commercial loan customers quickly discovered the right lending software could give them an edge in serving small business owners seeking streamlined loans.

While regional banks and credit unions have traditionally relied on a personalized, relationship style of lending, the slower-paced approval process didn’t work for PPP loans. Banks and credit unions that found success in the program were able to use business lending software to quickly ramp up their loan capabilities to meet the unprecedented demand.

In a survey by Cornerstone Advisors conducted last year, 65% of banks and 76% of credit unions said fintech partnerships would be important to their business strategies in 2020. Little did those respondents know just how important the right business lending solution would be.

What Makes PPP Commercial Lending So Different?

Business loans made under the Paycheck Protection Program have some unique requirements that cause problems for banks and credit unions that rely on legacy business lending software.

  • Speed: The loan application and decisioning process needed to be streamlined in order to help small businesses take advantage of available capital before funds were exhausted.
  • SBA backing: Any time a loan is guaranteed by the government, there will be additional hoops for lenders to jump through during the lending process.
  • Multiple changes to the rules: As the PPP lending program rolled out and expanded, rules changed quickly, requiring lenders to pivot and keep pace.
  • Forgiveness eligibility calculations: PPP loans can be forgiven, but the calculations for determining loan forgiveness are complex.

Risks and Opportunities for Financial Institutions

The PPP program presented both risks and opportunities for smaller lenders. The biggest risk: losing their existing customers to lenders who could approve loans faster. In a May survey by Greenwich Associates, 29% of small businesses said their opinion of their bank has worsened after going through the PPP application process. That made them more likely to look elsewhere for a PPP loan, and may lead to significant customer churn for banks in the coming months.

Business owners’ key complaints about the PPP application process included:

  • Confusing application process and unreliable online systems
  • Poor communications relating to loan approval, status, and forgiveness terms
  • Concerns that banks were more loyal to their larger, more important borrowing customers
  • Lack of responsiveness and weak customer service

A poor experience can not only cost your bank or credit union a customer, it can also cause reputational damage that extends far beyond that customer.

However, lenders also had an opportunity to capture new customers. To speed the loan origination process, many large banks accepted PPP applications only from their existing customers. This left small businesses without accounts high and dry—and ready for savvy lenders to step in and help. As Biz2Credit CEO and founder Rohit Arora has noted, economic downturns can offer opportunities for financial institutions that make smart lending decisions to build long-term customer loyalty.

How Top Performing Lenders Used Commercial Lending Software To Meet PPP Demands

Because of the lack of clarity associated with the PPP rollout, all commercial lenders that participated in the program needed to meet demand with a human touch. But top performers had strong lending technology behind them to help bankers and associates adapt to the requirements of a never-before-seen government loan program. Implementing a blend of configurable fintech solutions with the human touch that regional banks and credit unions are known for allowed successful PPP lenders to deliver what their clients expected.

Legacy Commercial Lending Pain Point 1: Loan underwriting and origination process

Most small business owners have become accustomed to banking online in their personal lives; many have dealt with online business lenders that enable loan application and approval in a matter of minutes. However, many small banks and credit unions still required in-person business loan applications at the time the pandemic hit, and would take weeks to make a loan decision on a single file.

Leaving aside reluctance to meet in person during COVID-19, the rush to apply for PPP loans before funds ran dry meant time was of the essence. Given the high volume of loan applications, however, processing applications quickly was a challenge for lenders using legacy protocols. Banks and credit unions that relied on manual processes such as filling paper forms, scanning paper documents and inputting data for commercial loan origination lost precious time—and potential customers.

Solution: Digital document management and automated underwriting

Successful PPP lenders enable business owners to apply on their websites and upload required documentation online. For example, New Jersey-based community bank Cross River earned kudos as the smallest bank among top PPP lenders. Cross River made close to $5.6 billion in PPP loans, 95% of them to businesses with fewer than 20 employees. Key to the bank’s success: It rapidly got up to speed, adding a platform to automate PPP loan applications in under 10 days, and partnering with fintech providers to encourage loan applications.

Online applications allowing fully digital processing speeds up the application process for both applicants and lenders. It also enhances data security and accuracy because there’s no need to copy or scan sensitive documents or input information by hand, which is error-prone.

Mitigating risk is important as margins on PPP loans were small, with interest rates capped at 1%. Yet overly strict lending criteria can slow down the lending pipeline. To strike a balance between risk and reward, the most successful PPP lenders relied on business lending software that incorporates artificial intelligence (AI).

AI solutions can overcome the natural imperfection of human decision making, allowing banks to take a systematic approach to loan evaluation and risk assessment. The result: faster and more accurate decisioning on PPP applications. Solutions that can be customized based on the lender’s requirements and risk tolerance help ensure smart decisions while reducing underwriting time. Given the frequently changing PPP rules set by the SBA as the program rolled out and expanded, this kind of flexibility was a must for helping lenders make adjustments on a dime.

It doesn’t hurt that AI underwriting tools save banks and credit unions time and money by reducing the man-hours needed to make lending decisions. In fact, data from Business Insider Intelligence estimates AI applications will save banks $447 billion by 2023.

Legacy Commercial Lending Pain Point 2: Customer onboarding

Lengthy onboarding processes required for commercial customers can delay customers’ access to loan funds, yet banks must comply with regulatory directives. Information must be collected from or verified with government agencies and third-party organizations such as credit bureaus. Departmental silos can mean customers have to keep submitting the same data for different purposes, such as legal due diligence or credit checks, throughout the lifecycle.

Typically, much of customer onboarding is done manually, adding to the cost and time required to complete the process. Ongoing monitoring for risk management and to comply with Know Your Customer (KYC), anti-money laundering (AML) and other requirements is also time-consuming. For PPP loans, additional requirements set by the SBA for loan approval, as well as frequent updates and changes to program rules, added to the workload. According to Deloitte data, it can take 20 to 90 days to onboard a new commercial customer. For small business owners desperate for PPP funds, this was much too long.

Solution: Use automated loan origination software to streamline small business lending

AI-based lending solutions can collect and analyze the necessary customer data for onboarding in minutes rather than days. Solutions with build-in third-party data integrations including IRS, credit bureau and financial data can speed up customer identification and authentication while also reducing the possibility of human error. 

Such platforms can also ensure regulatory compliance going forward by automating the process of monitoring customer accounts to comply with KYC, AML and the specific requirements of SBA-guaranteed PPP loans. For example, solutions that connect to customers’ payroll processing providers or HR management solutions enable lenders to gather real-time data about borrowers’ payroll expenses. This will not only help them make smart decisions about PPP loan forgiveness and speed the process of applying, but also provide verification of payroll data as required by the SBA.

By collecting all customer data in one place rather than siloed within departments, successful PPP lenders benefit from a single view of the customer. This enables faster decision-making, not just during the PPP loan process, but for the life of the customer relationship.

Legacy Commercial Lending Pain Point 3: Customer relationship management

Small business demand for PPP loans and the difficulty of getting them created opportunity for smaller regional banks and credit unions to capture new business from bigger lenders. To ensure customer satisfaction and retention, developing and maintaining a strong customer relationship is key, but legacy banking software can make this a challenge. When customer data is held in different formats, such as digitally and on paper, or siloed by department, it can be difficult for bankers to stay current with a customer’s needs throughout the loan origination process.

Making matters worse, smaller banks and credit unions’ digital and mobile experience is typically less than robust. This hinders the customer experience and makes it challenging for customers to quickly communicate with their bank or get information or status updates. During PPP rollout, with anxious small business owners eager for news about their loan applications, communication and relationship building were more important than ever.

Solution: CRM software designed for business lending

Successful PPP lenders rely on banking CRM software to put the unified view of the customer at their fingertips and help them more effectively manage the customer relationship. For example, a loan origination system that has a built-in CRM allows your team to provide better, faster service, as any customer-facing employee can pull up complete data on the customer to quickly answer questions.

CRM software also enables lenders to automate the process of communicating with small business owners regarding their loan application or loan funding status. Going forward, these features make it simple for bankers to follow up with customers at the right time to suggest new solutions and improve the customer experience. By recommending the right products and services at the right time, lenders can continue to grow the relationship with the customers they acquired through PPP loans.

Lending Software Spurs a New Era in Commercial Loans

The PPP loan program will continue to transform how small businesses seek capital—and how lenders serve them. As the pandemic drives demand for small business financing, business owners will turn to lenders that offer streamlined digital decision-making and seamless customer service. The right business lending software can help accomplish those goals.

With a raft of future proposals in place for amending or extending the PPP program, not to mention the coming wave of small businesses applying for PPP loan forgiveness, lenders will face new challenges. Fortunately, their newly adopted technological capabilities can help banks succeed not just in the near future, but also in the years ahead.

Interested in technology that will make PPP Loan Forgiveness easier for your institution? Talk to us about Biz2X Accelerate SBA. Sign up for a Demo.