On June 15, 2021, Vice President Kamala Harris and Treasury Secretary Janet L. Yellen made an announcement that was eagerly welcomed by an often neglected sector of small businesses across the country: The U.S. Department of the Treasury is awarding $1.25B in COVID-19 relief funds to 863 Community Development Financial Institutions (CDFIs).
The fight for small business survival is tougher than ever before, especially for minority- and female-owned businesses. These categories were both overrepresented in the sectors most affected by the pandemic, and disproportionately turned down for capital through standard and Paycheck Protection Program (PPP) loans alike.
According to the Small Business Credit Survey (SBCS), a collaboration of all 12 Federal Reserve Banks, 41% of Black-owned small businesses were inactive during the early months of the pandemic (as compared to 17% of white-owned small businesses) and nearly 80% of Black or Asian-owned small businesses are in weak financial shape (as opposed to 54% of white-owned small businesses). Although white-owned small businesses were facing low customer demand as a result of strict stay-at-home orders, minority-owned small businesses were failing for a different reason: nobody was lending to them.
Community Development Financial Institutions (CDFIs) play an instrumental role in revitalizing the economy by delivering loans to small businesses in low-income, underserved communities. Supporting CDFIs in providing often overlooked, underfunded small businesses with much-needed capital is essential to a strong and equitable recovery.
Fortunately, the government recently announced that 863 CDFIs across the country will have access to $1.25B in COVID-19 relief funds. This support program is designed to cover loss rates, de-risk CDFI lending and allow them to extend substantially more capital than they otherwise could by covering any incurred losses. Because of this decision, the awarded funds can translate to more than $10B in the accounts of underserved small businesses. It’s a powerful program approach—and CDFIs, with more money in their hands than ever before, are recognizing the importance of being equipped to lend efficiently and effectively.
As organizations shift from doing a few loans a month to funneling millions of dollars back into the small businesses that fuel our economy, it’s imperative to have a digital lending solution that can support the higher volume of loans while meeting the urgent needs of borrowers. Here’s how the right lending solution can help extend your newfound support funds faster and smarter, getting them into the hands of underserved small businesses, lifting up communities, and propelling your organization’s mission forward:
Enable end-to-end automation. In the realm of small business lending solutions, investing in your online channel means more than just adopting digital loan origination. It encompasses end-to-end solutions that cover everything from application intake to loan underwriting, gathering of supporting credit information to funding, and servicing to collections and repaying.
Turning to an end-to-end solution won’t replace your lending officers or render your staff irrelevant, but it will make them more efficient, allowing them to focus on the areas where they’re needed most: building relationships, connecting businesses, training owners, and rebuilding communities.
Keep in mind, end-to-end automation capabilities don’t have to lock you into a boxed solution. Look for a solution that enables you to automate as much or as little as you like, and customize automation parameters on a loan-by-loan basis. Automation is a benefit with a big return, even if it’s only used for certain workflows or loan types.
Empower stronger collaboration. Collaboration is essential to CDFI success. With a digital solution accessible from anywhere, anytime, by any partner, borrower, or collaborator, communication is streamlined across all parties. No more missed calls, delayed emails, and documents lost in the mail or forgotten in the fax machine. Efficiency is your priority, and granting system access to those who need it can eliminate communication silos, promote transparency, and expedite the exchange of information for faster decisions and funding.
Benefit from built-in reporting. Collecting comprehensive, accurate, and digestible impact data is a key part of a CDFI’s operations. With the right digital lending solution, reporting can be entirely automated. This makes collecting impact data seamless and error-free—it’s functionality with a giant value-add. With reporting technology built-in, your CDFI will generate a higher volume of higher quality data quickly and easily, allowing your staff to focus on the human side of the lending equation rather than repetitive calculations, and empowering you with the support you need to request additional program funding when you need it.
Gain greater flexibility. Today more than ever, being able to turn on a dime and make rapid adjustments is essential. Adapting loan terms quickly, enabling (or disabling) deferrals on the spot, and being equipped to make other critical, real-time changes to lending and payment terms are key to small business borrowers’ survival. With a secure, configurable digital system that’s always open for business—even when the lights go dark or your staff goes home for the weekend—you can deliver capital while minimizing risk. For underserved small businesses fighting to survive, flexibility and speed are vital, and digital can help you deliver.
Amid an unprecedented funding influx and overwhelming demand, it’s important that CDFIs are doing everything possible to make their share of the support program funds go as far as possible—and the lending experience seamless and expedient. After more than a year of last-minute loans, makeshift processes, and a system that all too often ended in “no,” the small businesses you serve will thank you for it.