Supporting the economic survival of small businesses
Coronavirus dealt a heavy blow to small businesses in the US. At least 46 states shut down non-essential businesses to slow the virus' spread, forcing many to lay off staff and watch their revenues plummet to zero. As part of the supply chain for essential businesses and multinational corporations, shuttering their doors also put the economy at risk.
In response, the US government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The centerpiece of this legislation, the Paycheck Protection Program (PPP), helps small businesses continue to pay employees during the crisis. To execute it, the government asked banks to rapidly funnel more than $650 billion in stimulus money to small businesses in the form of forgivable loans administered through the Small Business Administration (SBA). The objective? To save the economy from collapsing under the weight of a global pandemic.
A dash for cash overwhelms lenders
Immediately, participating banks saw a spike in loan-application volumes, which caused administrative backlogs. Even before CARES, banks were experiencing a surge in commercial credit applications because of low interest rates. Now, in a matter of days, they needed to update and scale their operations – including people, processes, and technology – to accommodate the act.
Banks had to implement substantial adjustments to the terms, conditions, and eligibility requirements of the SBA loan program. They needed to quickly train or engage operators to execute new verification, documentation, and monitoring procedures, and reconfigure small-business-loan platforms with speed and efficiency. And because banks needed to approve loans much faster than usual, the potential for operational and fraud risk increased, requiring them to augment their know-your-customer and financial crimes capabilities.
Small-business owners facing fear and frustration
Meanwhile, with SBA guidelines for financial relief evolving daily, small-business owners struggled to keep up with the latest eligibility and filing regulations. They were confused about the terms of the loan and whether it made sense for their businesses to accept the money at all.
In some cases, the systems their banks used for uploading documents weren't working. They worried the money would run out before their applications were processed. And with banks overwhelmed, it was difficult to get help from a customer-service representative.
Some of the hardest-hit small businesses were restaurants, healthcare and educational facilities, lodging establishments, supermarkets, and pharmacies – the customers of consumer-goods companies.