2021 is just around the corner—at long last. And with the authorization of two Covid-19 vaccines, there’s reason to believe that the fresh start many are hoping for in the new year is on its way.
But before putting 2020 behind us, let’s take a minute to consider how the disruptions triggered by the pandemic also brought about silver linings and growth for many lending institutions—and how those changes will inform the most important banking trends of 2021.
After ongoing inertia to digitized banking, now there’s no turning back: digital lending is here to stay. Lending institutions that were just dipping their toe into the digital space should expect to fully immerse themselves in 2021. The decisions you make in the first quarter about adopting new technology and expanding your reach to small businesses may be some of the most crucial you make all year.
So what’s trending? Anything that can help your institution run smoothly in a purely digital space and address the growing needs of small businesses—long after the pandemic is past tense.
Here’s what to look out for in the year ahead—and how you can jumpstart your 2021 by getting on board now.
Fully integrated tech solutions
The story of small business lending in 2021 can be told in three words: access, simplicity, and efficiency. There are myriad tech solutions that can help lending institutions go completely digital; they all, in one way or another, will accelerate, streamline, and personalize a process that can be completed from a smartphone.
If you haven’t already adopted an end-to-end solution, 2021 is your year. For starters, digital application solutions that help lenders originate more loans in less time will continue to rise in popularity, as will secure, automated two-way communication tools that allow applicants to upload all documents directly to their application portal.
And once that loan is approved, a fully integrated digital funds transfer, as opposed to cutting a 20th-century paper check, will be par for the course. Digital transfers can also give you the option of making daily electronic payments directly to small businesses over the life of a loan, which in turn can mitigate the risk to lending institutions.
These digital solutions will help you cast a wider net and build your customer base while simultaneously helping more small business customers. What’s more, you’ll reduce costs, errors, and frustrations. Clunky manual underwriting and approval processes are soon to be a thing of the past.
Increased small business support
The role of small businesses in economic recovery will be a crucial topic throughout 2021. Consider that small businesses, or those typically with fewer than 500 employees, contributed almost two-thirds of net employment gains in the U.S. from 2000 to 2018, according to the Small Business Administration (SBA).
With that said, as many small businesses will be awaiting a much-needed infusion of capital, increased protection, programming, and development for these enterprises will be top of mind in 2021. We’ll see a boost in small business funding at both the state and federal levels, from the second round of Paycheck Protection Program (PPP) funds, with a focus on women and minority-owned businesses, to the state-level small business grant programs that President-elect Biden intends to establish.
All told, with more funds earmarked for small businesses, the more entrepreneurs will be reaching out to lending institutions. Though it will vary by location, lenders may see a major uptick in applications—so make sure you’re ready to process those loans. Perhaps make it your New Year’s resolution to get some of the aforementioned tech solutions in place.
Attention to shoring up financial health
From increasing online options to offering curbside pickup, small businesses that are surviving during the pandemic have nimbly navigated new terrain and remained highly attuned to customer needs. In many respects, community banks have followed suit. Digitizing lending and finding virtual workarounds to in-person interactions is peak 2020 pivot.
But small businesses, even those that creatively adapted, and/or received funding, are still struggling. In 2021, they’re going to need more funding and a fresh direction—on how to keep their companies viable with reduced workforce, or how much to invest in employee and customer safety, for example. And that’s where the role of lending institutions may dovetail with trends in financial health awareness.
Everything from maintaining sufficient cash reserves, managing debt, and calculating risk fall under the small business financial health umbrella. Lending institutions may benefit from working with a digital platform that offers financial health tools, from surveys to financial literacy. The benefits are twofold: understanding the financial health of a business can help lenders tap into trends and pinpoint opportunities to boost their potential customers’ financial wellness. When they are looking for a loan, or any product or service, they’ll be more attuned to your institution.
In a nutshell, 2021 will accelerate the changes set in motion in 2020: the transition from brick-and-mortar to digital lending, increased circulation of funding for small businesses, and a more comprehensive approach to small businesses financial health.
And though the lending process is well on its way to going from a face-to-face transaction to a tech-driven workflow (with human assistance), the people involved still matter. As you head into the new year, consider how you can best serve the individuals who depend on your community bank—and whose businesses your community depends on.
