As recently as two years ago, banks and credit unions really didn’t lend to real high street. They focused on large companies that needed cash injections of over $1 million, had good credit, plenty of collateral, pristine cash flow…and really didn’t have any. need a loan. Why? Because there wasn’t a lot of technology (any?) used in the process, which meant it cost the same to process a $1 million loan as it did a $10,000 loan, so that banks simply handled larger loans and relied on relationships to drive business forward.
Then the pandemic hit. And everything changed. While the closures and mandates dealt a heavy blow to the 70% of small businesses that closed, the final blow came when lenders…each lender– turned off the money spigot, which effectively froze Main Street.
When the Paycheck Protection Program began, shuttered banks had to find a way to accept PPP applications online. For the most part, fintechs, including Lendio, have become the bridge of the lenders’ tech divide. Banks had a pretty steep learning curve in terms of technology, but the experience forced them to take a hard look at APIs, workflows, and digitization. They liked what they saw and many of them don’t come back.
This includes Texas National Bank (TNB), one of more than 300 traditional banks Lendio has helped during the pandemic. TNB President Joe Quiroga was kind enough to sit down with me to talk about the PPP experience and how it is changing the way his bank approaches small business lending going forward.
BROCK: The pandemic – you said it helped you see a better approach to the systems and processes your bank used before the pandemic. Can you explain?
JOE: We had a day where we needed to book 300 loans on our system – we never had to book 300 loans in a month before the pandemic let alone in a day – and I just saw it get worse . I knew we might be able to book 300 loans manually today, but tomorrow, if we had 500 or 1,000, there would be no way to do it manually by typing it all into our system.
BROCK: So you made any changes?
JO: Yes. That’s when the importance of automation, integration and data sharing hit us. Eventually we got to the point where we were reserving 1,000 loans per day in an automated way. It was just… happening. We had no humans physically typing these loans into our core system. We knew it was a better way to do things now and move forward.
BROCK: How long would this evolution have taken without the pandemic?
JOE: We are a small institution. We are dynamic and we are younger, so we have been has been down this road before, but I think what the pandemic forced…he accelerated a 5-year project into a one-year turnaround.
BROCK: What impact have these changes had on your bank?
JOE: When you compare us to the traditional bank in Texas or even our area, we’ve processed 5 to 10 times more PPP loan applications relative to our size. It has really paid off and we will now be rolling out this strategy for small business lending. I’ve called “small business loans” the final frontier of community banking – they’re the only types of loans we stick with.
It works to have a partnership because we have something fintechs don’t have… we have capital and fintechs have the right process and the right technology. That’s how this marriage comes together to say, “Hey, we can coexist.” Quite frankly, we can now fund loan transactions that we didn’t even see in our backyards before. This is, for a community banker, the real evolution.
A new type of borrower
What Joe didn’t mention, however, is how badly the market needs this development. More than 4.4 million new businesses were created in 2020 (source: US Census Bureau). Last year, that figure rose to 5.4 million. Compare that to the 3.5 million started in 2019 on the eve of the pandemic. BTW, 52% of these new businesses were started with less than 10,000 funding and almost half of this group had less than $5,000 when they opened.
The majority of these new businesses rely on existing money, savings and family/friends to get started. But some are also realizing that there are new loan options available that simply didn’t exist before the pandemic.
We are seeing an increase in lenders embracing the gig economy and underwriting loans that straddle the fence between a personal loan and a sole proprietor loan. And, as Joe said, banks didn’t really “see” these super small businesses in the past. Although there is not much good to say about a global pandemic, PPP loans pushed this development because a large number of people who received PPP loans were in fact sole proprietors. And for those who started their businesses during the pandemic, there’s never been a better time to access capital. Optimism on Main Street is strong and growing.
How lending is getting better for small businesses, too
We have worked with thousands of business owners on PPP loans. For many, it was the first time they had applied for a loan outside of a traditional bank or credit union. For some, this was their first attempt at applying for a business loan.
Whether or not they were successful in securing funds, much of the feedback we received from applicants focused on how easily and quickly we were able to process their documents. Clearly, the PPP process has had its share of hiccups, but it has also introduced small business owners to a world of loans they may not have known or ever felt comfortable with. comfortable to use before.
Today, it gives us business owners more confidence and a better understanding of how to access capital. They leverage their access to cash in a way that has never been seen before in our industry. As uncertainties exist, including high inflation, supply chain slowdowns and the global effects of war in Ukraine, small businesses have renewed interest and are better equipped to weather whatever comes their way. waits.
We still have a long way to go to get back to where we were before the pandemic, but there is no doubt that Main Street and the financial institutions that support it are both more efficient and more resilient than ever.