SMBs are seeking financial immunity from COVID

COVID-19 concerns are far from over, and this is raising questions for many small-business owners. Will consumers return to pre-COVID-19 norms? Will hiring continue to be difficult and expensive? How will businesses recuperate from the continued losses expected from canceled business?

To get answers to these questions and more, many small businesses turn to their banker.

Small businesses need help navigating loan options and applications. Beyond lending, many also need help with cash management and implementing the advanced payment options that customers increasingly want.

“During the pandemic, many banks had to change how they interacted with small businesses to make sure they were meeting their customers’ needs to avoid the risk of losing business,” says Paul Davis, director of market intelligence for Memphis-based Strategic Resource Management Inc. “And those banks that are concerned about their small-business customers often find that just helping them with loans and cash management may not be enough.”

Whitney Randall, senior vice president and commercial loan officer for Citizens Bank of Edmond in Oklahoma, concurs with that sentiment. “We have to stay engaged in coaching them in many aspects of their business.”

Vivian Merker, partner with New York-based Oliver Wyman, says banks were already changing how they think about small business when COVID arrived and promptly accelerated that trend. The bottom line, she says, is that “banks need to do a better job of looking at their customers through their customers’ lens.”

Amid ongoing economic stress, even small businesses that have never taken out a business loan may now need to explore such options. Many companies want to have more cash available in the event of another emergency, Randall says, and that means securing additional loans or at least having a line of credit available.

“Businesses that before were OK with having $20,000 in cash on hand are now looking to have $60,000 or $100,000,” Randall says. “They are afraid if there are more shutdowns, they’re going to be scrambling for cash like they were last year.”

With the Paycheck Protection Program over, small businesses need to find different sources of funding. “There are a lot of options for small businesses, and they need banks to help them navigate their options,” Merker says. “Do they want a traditional SBA loan, or are there city or other local loans that might be available? They need help in connecting to the right solution. This is especially tough for businesses that do not have a history of borrowing.”

And while securing funds may be high on the list of small businesses’ needs, it is not their only concern.

“They’re handling a lot more online orders, and they’re processing payments differently,” Merker says. “They’re doing curbside business, where they take payments in advance, and they’re experiencing coin shortages.”

SRM’s Davis agrees that helping small businesses with payment technology is especially important given the ongoing uncertainty caused by the pandemic. But banks that plan to offer that support may need to brush up on their use of payment technology offerings.

“A lot of banks learned that they need to improve their technology offerings,” he says. “A lot of businesses became more reliant on technology during the pandemic, and that reliance is here to stay. Additionally, there are nonbank technology companies that are now competing with financial institutions, and they have raised the stakes in terms of the technology offered.”

Davis advises banks to consider partnering with noncompeting fintech companies to provide products and services that support small businesses’ payment options and other banking needs. “During PPP, a lot of community banks found they were ill-equipped to handle the wave of loan applications they received,” he says. “They had to either invest in new technology or find collaborating partners who helped them on a contractual basis.”

Banks have been encouraged to identify unbanked and underserved consumers to spur growth, and the small-business community offers similar opportunities. Banks that offer mentorship to business startups, Merker says, particularly those owned by women or minorities, stand to gain appreciative new customers – the kind of customers that can help financial institutions improve their positioning in this highly competitive environment.

Lauri Giesen is a BAI contributing writer.

Learn how your financial institution can win relationship primacy by offering services to match SMBs’ newly upgraded digital capabilities in the BAI Executive Report, “Big stakes in small-business banking.”