Five Reasons Banks Are Now Using Digital SBA Lending Programs


Small Business Administration (SBA) loans are more important than ever for banks in the wake of the COVID-19 pandemic and the Paycheck Protection Program (PPP). A good digital-first strategy for SBA loans is needed to capitalize on the near-term changes that will have long-lasting consequences for business banking.

  1. Post-COVID, SBA Lending Is Here to Stay
    SMB’s will take time to recover and it’s clear getting back to normal during COVID-19 will take more time and may include setbacks. Government stimulus programs led by the SBA will continue to be an important backstop and competitive source of capital for the health of the economy.
  2. More Competition
    There were 1,600 certified SBA lenders in March 2020 when the pandemic hit. Almost overnight, the Treasury announced an additional 5,000 SBA lenders would be approved, mostly smaller banks, to assist small businesses in their time of need. Larger banks who used to have small SBA programs will now prioritize more SBA loans instead of proprietary loans to reduce risk exposure.
  3. Lasting Digital Transformation
    The brand of banking itself and the traditional client-banker relationship will be changed forever. Access to branches are limited and will continue to be de-emphasized even after the pandemic subsides in favor of responsiveness and ease of use above all else. PPP showed banks’ small business clients how to do things digitally. Banks need to seize this moment and the shift in habits they are seeing. Those that get it right and demonstrate their commitment to a digital experience for their clients, will not only be able to maintain their existing base, but rapidly grow market share in the business banking space. Digital experience can’t be an afterthought anymore.
  1. Window of Opportunity for Community Banks
    Many SMB clients were frustrated with how larger banks handled PPP. Business owners often felt that they were being deprioritized by the major banks even though they were most in need. Especially during the initial rounds of PPP, the frustration levels were high. Many community banks were caught flat-footed without the technology resources to quickly adapt to serve these potential clients. Now is a key moment for community banks to capture this opportunity by partnering with fintech companies, to quickly implement solutions that combine “high-touch” with “high-tech.”
  2. SBA Fraud Is Increasing
    U.S. Banks and credit unions reported skyrocketing levels of fraud as awareness increases in these government programs. Data from the Treasury Department’s Financial Crimes Enforcement shows a 14x increase in the monthly average of suspicious activity reported—a fourth consecutive monthly record dating back to 2014. Manually reviewing documentation is time-consuming and having clients come in person limits the ability to process applications, adding friction. Technology can mitigate fraud through validation, such as multi-factor authentication, IP address checks and automated review of bank statements using AI to prevent loan stacking. This ensures loans are made to worthy borrowers with the speed expected, while using advanced technology to lower risk.

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