Community Banks Continue to Respond to Small Business Needs

By Charles E Potts

Charles PottsLiterally overnight — the night of March 26 — community banks answered the call to support small businesses fighting to survive COVID-19. In that one day, 3,700 institutions became new Small Business Administration (SBA) lenders to support the Paycheck Protection Program (PPP). Then, over the course of a few weeks, community banks collectively dispersed one hundred times as many loans as they did in all of 2019.

This surge of economic support has been a lifeline to the more than 4.5 million small businesses nationwide that have become PPP loan recipients. In fact, the PPP has infused more than $512 billion into the economy to help keep small businesses up and running, despite closures, safer-at-home mandates, and other never-before-seen measures.  

If we’ve learned one thing from the PPP response, it’s that community bank-fintech partnerships allow for quick and efficient adaptation to changing market dynamics. But given the enormity of COVID’s impact we have to cast a wider net and address the future of small business banking.

This topic was the focus of a recent panel, “Serving Small Businesses Through the Current Crisis and Beyond,” at the Financial Health Network’s Emerge Live virtual event on June 22.

Joining me for the lively discussion were Jo Ann Barefoot, founder and CEO of the Alliance for Innovative Regulation, Luz Urrutia, president and CEO at Opportunity Fund, and Jane Barratt, chief advocacy officer at MX.

“I think this is the first time in my career that the awareness of the importance of small businesses in our communities has finally hit home for the world at large,” said Urrutia. “It took this massive crisis to make it happen.”

As employers to half of American workers, small businesses feed our economy, and with the latest financial downturn, they remain disproportionately at risk. As Federal Reserve Chairman Powell noted in his June 17 remarks before a Senate banking committee, “Until the public is confident that the disease is contained, a full recovery is unlikely. Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. . . The pandemic is presenting acute risks to small businesses.”

Clearly, we’re at the beginning of a long road to recovery. So, as the PPP program winds down, the question becomes, how can community banks continue to support their local small businesses?

“A client of ours told us that 99 percent of new small business lending customers came to him during a risis,” said Barratt, of MX, a data and analytics fintech that supports financial institutions.That’s a systemic failure of the whole industry. We can, and will, do better.”

Community banks have been, and always will be, ready to step up to the plate. This is an opportunity for us to reimagine how we serve small businesses—during times of crisis and beyond to create mechanisms and methodologies that reimagine lending.

But it goes beyond lending to the services that speak to small businesses today, the digital solutions that resolve pain points. With support from fintech partners, community banks can expand offerings and provide what a small business needs not just to survive, but to thrive, in this new, digital era.

“This is a moment to solve problems that have existed for years,” said Barefoot. “We’ve clearly reached an inflection point.”

It’s a topic worth further exploration as we look to redefining our economy in a post-COVID-19 environment.

In the meantime, community banks will continue to be the cornerstone of their communities and do what it takes to support their small business customers in today’s shifting landscape.  

Charles E Potts is ICBA’s Senior Vice President and Chief Innovation Officer