As Lending Moves Online, Small Businesses Can Still Access Capital

Bank branches are closing but what does this mean for small business lending?

By Jorge Sun, CEO and Co-Founder, LendingFront

Even before the COVID-19 pandemic struck, bank branches across the country were closing at an alarming rate. According to a Quartz analysis of data from the Federal Deposit Insurance Corp. (FDIC), the number of full-service bank branches fell from nearly 95,000 to just over 83,000 between 2010 and 2019—resulting in a loss of 12% of bank branches across the U.S.—with 23 counties losing more than 50 branches each in the process. And post-COVID-19, closures have accelerated significantly, resulting in several community banks across the country, including CB Financial Services in Carmichaels, PA, Mercantile Bank in Grand Rapids, MI, and Nicolet Bankshares in Green Bay, WI, reporting plans to shutter permanently.

For consumers who were already leveraging digital lending channels before branches closed their doors, this uptick in closures won’t have as big of an impact. But for small business customers whose only option for taking out a loan is to visit a branch, these closures pose a much larger challenge.

Local branches continue to add clear value, especially when it comes to relationship-building for small businesses. At the same time, technology can bring a number of added efficiencies to lending processes. However, technology can’t, for example, take the owner of a small business out for dinner to discuss upcoming capital needs. As such, it’s important to understand the role that branches and technology can play, separately and together, in this new environment. To enable small businesses to access the capital they need while while meeting the demands of the digital landscape of small business lending, consider these three strategies:

1. Embrace automation over manual processes

Paper-based manual and in-person processes like application intake, document management, and underwriting were and continue to be tedious, time-consuming and costly. The difference is that without widespread access to physical branch offices during COVID, these outdated processes are no longer a viable option. Today, digital lending processes are the preferred strategy—and for good reason.

By applying automation to parts of these processes, lending institutions can save working capital and reduce the cost barriers to small business lending. Automation at any step(s) makes it more profitable for institutions to process small business applications and extend capital that—even if still a relatively small sum—can more than justify the means.

And automating one thing doesn’t necessitate automation of everything.  No one wants to see automation replace branch bankers. Rather, automation technology augments efficiencies, helping bankers focus on activities that are more valuable to the bank and to customers such as relationship building and working more complex deals.

2. Digitize communications from the start

While community banks and small business customers value “relationship banking,” the definition of that relationship is changing. Typically, when a small business researches loan opportunities, the bank website will direct them to: “Visit a branch.” But with COVID-19 making face-to-face interaction even less desirable, visiting a physical branch is no longer an optimal solution. So what’s a branch to do?

The answer lies in the digitization of communications. In doing so, local banks can free up time for lending officers to spend on other pressing priorities and attract more small business borrowers who are happy to seek capital from the convenience of their computer. But it’s not an all-or-nothing commitment. With a tailored solution, institutions can digitize as much or as little communication as they want. For example, an institution may prefer to finalize a loan contract in-person (even if they skip the traditional handshake!) but automate the application intake.

3. Maximize accessibility to capital

Digital loan origination channels can play an essential role in maximizing accessibility to available capital. These channels help lending institutions stay open 24/7 and originate small business applications regardless of whether a branch is closed for the night or closed for good. By employing screening technologies and enabling a host of digital document uploading capabilities, digital loan origination channels allow banks to originate more loans in less time—and at a fraction of the cost.

While there may be fewer physical branches today, local banks are still well-equipped to help small businesses avoid a capital drought. To infuse small businesses with the capital needed to weather these turbulent times, lending institutions must balance the need for in-person relationships and lending practices with the benefits that technology can provide. By automating in-person processes, digitizing communications and expanding and maximizing accessibility to available capital, bank branches can continue to play a key role in giving small businesses what they need to survive—and maybe even thrive— in today’s fraught climate.