Garnet Capital Advisors Blog

EXCERPT:  Small community banks showed their true value during the first wave of the Paycheck Protection Program by stepping in and providing small businesses with the loans needed to stay afloat during the COVID-19 pandemic.

Many small businesses in need of financial assistance have been turning to small community banks to process loan applications immediately.

Millions of small businesses are suffering from severe revenue losses due to the COVID-19 pandemic, and they're looking to their banks to provide them with some financial relief.

The government is already offering various relief programs. Still, banks and lenders can play their part in helping small businesses get the financial assistance needed to carry their operating costs and prevent them from shutting their doors permanently.

And it appears that small community banks are making an effort to do just that.

Small Community Banks Are Showcasing Their Value

In essence, the current health crisis is giving small community banks an opportunity to shine and prove their ability to step in when clients need assistance the most.

For years, big banks have been drawing in a large share of deposits with widespread branches and an increase in financial technology products. But now, community banks are showing how valuable they are in the financial industry, particularly to small, local businesses.

In fact, community banks - which are those with less than $10 billion in assets as per the Federal Reserve - approved approximately 60 percent of loans over the first installment of the Paycheck Protection Program, according to the Small Business Administration (SBA) and US Treasury Department.

The Paycheck Protection Program was developed by the government to alleviate the economic damage to businesses as a result of the coronavirus pandemic. Loans provided through this program will be forgiven if small businesses keep employees on payroll for eight weeks, and the funds are put towards payroll, mortgage interest, rent, or utilities.

The smallest banks seemed to be the biggest providers, respectively, with banks holding no more than $1 billion in assets approving almost 20 percent of loan dollars, despite accounting for only 6 percent of all banking assets in the country.

Big banks like JPMorgan and Bank of America tend to work with large corporations, but small community banks are taking in businesses of all sizes needing a financial break. The latter has also been making a valiant effort to process loans right away, while big banks like Citigroup and Wells Fargo needed time to get their online loan platforms operational before they accepted applications.

Small community banks have taken the opportunity to add new accounts to the books through easy accessibility and efficient loan processing.

Small banks like Choice Bank prepared for an onslaught of loan relief applications by reassigning a large portion of bank staff to a dedicated application processing team. Others were on phones and submitting documentation until well past traditional banking hours to ensure applications were being processed in a timely fashion.

On weekends or after-hours when traditional banks are closed, clients have been able to get through to smaller banks that have expanded their hours and efforts. It's steps like these that have fast-tracked the efforts of small community banks, which seem to be far more active in processing loans compared to larger banks.

While big banks may have stalled due to perceived compliance risk, smaller banks saw this as an opportunity to bring in new clients and add new accounts to the books.

Having said that, by the second round of the program, big banks had picked things up. The SBA permitted lenders to submit large numbers of applications simultaneously.

Banks and Lenders Urged to Revisit Their Loan Portfolios Amid Economic Uncertainty

While prospecting for new accounts is a proactive approach to building business, small community banks should simultaneously be ensuring that their loan portfolios are robust enough to weather the storm we're in, as well as any others that may arise.

By selling off risky assets and replacing them with newly-acquired ones that are much stronger, banks can create a sound loan portfolio that will hedge against risk. And Garnet Capital can help facilitate these transactions.

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