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Managing COVID-19 small business lending applications

Paul Hutchins,
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As a former regulator with the Federal Deposit Insurance Corporation (FDIC), and after having spent a number of years in senior level banking roles, I have never witnessed a broader threat to the industry than the current pandemic.

As the economic challenge spreads across the country, retail banks and other lending institutions find themselves faced with competing priorities that require an immediate response while addressing future digital transformation efforts. Financial institutions are working to keep access to needed banking services for customers who no longer visit branches plus monitor supervisory and compliance functions that continue to be enforced. They’re also trying to manage customer expectations while continuing to focus on revenue growth. And, they need to be mindful of the changing audit and compliance rules that govern the programs being developed to address this strain.

With respect to credit availability, the COVID-19 pandemic has impacted lending across every industry, forcing banks to quickly modify lending programs and adapt to new, unpredictable challenges and needs. With our nation's small businesses facing an unprecedented economic disruption due to the coronavirus outbreak, the U.S. recently passed the CARES Act, which contains $376 billion in relief for American workers and small businesses. Legislatures and central banks from around the world are all taking action as well. For example, the U.K. has created the Coronavirus Business Interruption Loan Scheme to address this issue. In addition to traditional Small Business Administration (SBA) funding programs, the CARES Act establishes several new temporary programs to address the COVID-19 outbreak:

  • Paycheck Protection Program: This loan program provides loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program.

  • EIDL Loan Advance: This loan advance will provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties.

  • SBA Express Bridge Loans: Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.

  • SBA Debt Relief: The SBA is providing a financial reprieve to small businesses during the COVID-19 pandemic.

The administration of these programs also presents unique challenges as banks deal with:

  • Larger than normal volumes - many involving exceptions and rapidly changing policies - require more digital solutions as human staff are overwhelmed.

  • The need to support large volumes of small business loan applications with a requirement to respond and process immediately.

  • The need to modify their current policies for loan concessions (payment deferrals, interest, and fees) and collections treatment strategies, also at unparalleled volumes.

Some banks have responded with simple web forms or PDFs to capture this with varying degrees of success. Although it’s admirable that these banks want to help their client base, there may be some unintended consequences to a focus on quick capture. First, if the bank can’t effectively communicate qualification criteria up front, they are setting up their small businesses for a nasty surprise later. Second, if it’s capture only without being plugged into the end-to-end systems and processes, banks are kicking the can down the road. Do they have all the people needed to manually complete the work faster?

Some of the elements to consider while attacking this opportunity are:

  • Low-code development. This allows the business (who understand SBA lending) to rapidly develop solutions with IT. There is no time for carefully curated requirements to pass on to IT, who then delivers an application in 6 to12 months. Rapid prototyping will save countless man-hours of manual work later and also can rapidly change as regulations expire or new laws are passed.

  • Orchestrated case management. Data captured in a form or a ticketing system is good but managing all the steps and stages to get work done is really the goal. Banks must be agile to support new types of work dynamically with parent-child case structures that keep associated work together but are flexible enough to distribute work assignments. In addition, banks will want to make sure they have audit trails, SLAs, and other documentation that clearly demonstrate the who, how, what, where, and why the work got done.

  • Intelligent automation. Exceptionally high volumes here mean manual intervention for each request – even if it’s just one step, screen, or data element – isn’t going to cut it. RPA, business rules, and business process management will be key to automating decisions, so humans are pulled in only when judgment is required. The goal should be straight-through-processing (STP) to reduce both cost and elapsed time.

Pega has created a reference application that specifically addresses this sudden high volume of loan applications, the need to respond quickly to customer requests, and the need to process those requests expeditiously. You can read about it here and download the app from the Pega Marketplace here. Pega clients can use the platform to rapidly respond to customer needs while creating transparency into the processes for audit and compliance requirements.

It is also highly likely that the U.S. Congress will expand and make further changes to the current small business loan program. The economy is deteriorating much faster than expected and the initial funding is proving insufficient. Some banks are already over-subscribed or don’t have the resources to process loans outside of their existing customer base. With unemployment rates continuing to rise, expect additional funding along with additional loan forgiveness parameters.

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Tags

  • Challenge: Enterprise Modernization
  • Challenge: Customer Service
  • Industry: Financial Services
  • Product Area: Platform
  • Product Area: Pega Platform
  • Topic: Operational Excellence
  • Topic: Pega Platform

About the Author

In his role as Pega’s Senior Director and Industry Principal for Financial Services, Paul Hutchins advises some of the world’s most recognizable financial brands on opportunities for growth, engagement, and digital transformation.