The initial shock of the COVID-19 pandemic took many companies by surprise. This resulted in the rapid deterioration of many of those companies’ balance sheets. To dampen the blow, the U.S. Government took unprecedented steps by partnering with banks to provide an immediate backstop for those businesses who were feeling the impacts of the pandemic.
However, some prominent banks did not respond to their clients in a timely fashion. And, many reports of these service delays have come from customers of some of the largest banks.
Some Banks May Have Prioritized Larger Loans Over Smaller Companies
For starters, Wells Fargo has been accused of shuffling PPP loan applications to favor larger organizations in a California court filing. In addition, small business banking juggernaut, Bank of America, is also being accused of similar practices.
By prioritizing larger institutions, banks would be able to lend more money with less effort, in less time. This practice may have allowed them to increase their overall profits by shutting out smaller, more vulnerable companies. In fact, Bank of America was able to virtually corner the PPP market by lending almost 10% of the initial allotment of $350 billion in the first day, before several other major players took their first application.
If any banks are proven to have manipulated the government lending system, this could be viewed by the public as a failure in their duty to serve American businesses, during the worst pandemic in 100 years. The consequences of these alleged actions are already being seen in the banking market.
Businesses are reacting to perceived failures by their banking partners.
American companies appear to be re-evaluating their banking relationships in the wake of the pandemic. A shocking 41% of businesses plan to drop their current banking provider due to poor handling of the PPP and other emergency loan programs, according to research commissioned by Encompass Corporation.
This massive, potential shift in the banking market represents a once in a generation opportunity for those banks who were diligent in serving their clients. But which banks are expected to benefit from this enormous migration?
Community banks stepped up to meet the challenges of the PPP program.
While some of the major banks were reportedly catering to their larger customers, with larger loans, thousands of community banks were joining the SBA to assist their clients in obtaining the emergency funds. In fact, a day before the CARES Act was passed, the SBA had about 1,600 registered small business lenders. By the next day, they expected over 5,000 banks to join those ranks.
Then, once the numbers were reported for the first wave of PPP, around 60% of the loans were found to have been processed by community banks. So, while a huge amount of PPP dollars was being distributed by the large banks, an even more impressive number of loans were being processed by community banks. For example, one small institution, Cross River Bank, reportedly processed around 100,000 PPP applications. These numbers indicate that community banks were serving small and medium-sized businesses at a much higher rate than some of the bigger players.
Fintech providers were also a major player in serving smaller companies.
Many of the smaller businesses who were delayed or shut out of the PPP by their mega-banks turned to fintech providers to get their funds as they were running out of options. Companies like Paypal, Kabbage, Square and BlueVine were enlisted by the government to handle some of the PPP load.
As an example of how these companies were able to leverage their fintech to meet the needs of small businesses, Kabbage reported a median loan amount of $13,000 and an average of $29,000. These numbers indicate that they were mostly serving the small businesses who may have been delayed by their larger banking partners. In fact, as of mid-June, Kabbage had processed the 4th most applications of any SBA lender. Other fintech providers have shown similar success.
Fintech and Community Banks Are a Winning Combination
As businesses have learned in recent months, the world of banking is changing. Fintech disruptors are now providing services that were once reserved for large banking institutions, and community banks are proving that they can service their customers more efficiently than the banking behemoths.
So how can your business leverage the power of fintech and the exceptional service of community banks? Our company, the American Deposit Management Co. [ADM], has the answer, and we call it Marketplace Banking™.
Marketplace Banking™ with an AMMA™ Account by ADM
If your business is making the shift to a new bank, be sure to first choose a bank who can provide a relationship that meets your needs. Once you’ve established your new banking partner, reach out to ADM to open an AMMA™ account. Then your business can access the benefits of Marketplace Banking™ almost immediately. Then let our fintech do the rest.
What is Marketplace Banking™?
Marketplace Banking™ is a concept developed by ADM using our proprietary financial technology. It means you have access to a network consisting of hundreds of banks and credit unions that can provide your business with access to extended FDIC / NCUA protection and nationally competitive returns, with a single deposit.
Then, you can rest assured that your company’s reserve funds are being sheltered by those same institutions that stepped up to save America’s small businesses, fully backed by the FDIC or NCUA, and available when you need them with next-day liquidity. And, don’t worry, we are not here to replace your new bank, we are here to enhance it.
Earn more, risk less® with ADM.
At ADM, we take the work of cash management off your plate. With a full suite of cash management solutions, from business escrow to vendor payment processing, we’ve got you covered. So, if your business maintains a large reserve of cash, or if you are looking to reduce the work required to manage your cash, don’t hesitate to contact us. We look forward to the opportunity to provide your business with access to extended safety and nationally competitive returns.
If you’re looking for even more valuable insights on banking, interest rates, and effectively managing your business cash, be sure to check out our Insights page and follow us on LinkedIn, Twitter and Facebook.
*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.