When Benjamin Franklin said, “Out of adversity comes opportunity,” he couldn’t have foreseen how a highly contagious virus could substantially halt the economy in the country he helped found.

Fortunately, banks and credit unions worked alongside businesses to turn the opportunity presented by the federal government’s pandemic-era funding into a lifeline for many employers and their employees.

When COVID-19 hit the United States in full force, the resulting shutdowns landed heavily on small businesses and service-sector workers. In response, the federal government in late March signed the Coronavirus Aid, Relief and Economic Security (CARES) Act. This legislation included a $350 billion program and was expanded in April to include an additional $310 billion for the Paycheck Protection Program (PPP).

The purpose of PPP was to provide eight weeks of cash-flow assistance to help small businesses meet expenses, including payroll, with loans through the Small Business Administration. The loans were 100 percent federally guaranteed, with borrower forgiveness if businesses used the money for specific expenses and to maintain or reinstate staffing levels. All small businesses were eligible, including sole proprietorships, independent contractors and self-employed individuals.

Banks and Credit Unions Step Up

Large and community banks traditionally have occupied the role of business lender. However, credit unions are finding ways to expand into this sector as they seek new sources of fee income, larger loan balances and blended commercial-retail household relationships. Enter the immediate need to unravel PPP requirements that seemed to change daily, while scrambling to help as many businesses as possible before funding ran out.

In both the credit unions and the banks studied, there was a mixture of those institutions that offered assistance solely to existing accountholders, and those that expanded their offering to new relationships. In both cases, the response was swift and overwhelming from affected businesses.

Joe Mirachi, president/CEO of the $770 million Launch Credit Union in Merritt Island, FL, said that they had not done any commercial or SBA loans prior to the pandemic. Fortunately for the credit union, expansion into commercial loans was part of their business plan developing through a Credit Union Service Organization partnership. The credit union originally planned to launch the program later in the year. However, the immediate need exploding in their community, combined with the sudden availability of funds through the PPP, accelerated their entrance into this new business line and they had the program up and running within three days.

Gwen Frazer, vice president of Consumer Lending Business Development, became the project manager for Launch’s foray into business lending. She said the credit union booked 109 loans for a total of $3.65 million. One of those loans was granted for $1.1 million, but most of them were much smaller and went to such businesses as travel agencies, churches, salons, plumbers and landscapers. ”You name it, we saw it,“ Frazer said.

In the first round offering the loan, the credit union mass emailed all members and individually called businesses. The response was so large and so swift that the team worked from 7 a.m. until midnight the first couple of weeks. When the second round of funding became available, the credit union reached out to those who had previously applied but hadn’t received funding in the first round. The credit union was able to turn approvals around within a day.

“We didn’t look at this as a job,” Frazer said. “It became more personal than it did work. Numbers didn’t matter. It was, ‘How do we help this person?’ Half the time, I felt like a therapist. This, by far, has been the biggest satisfaction of my career.”

Businesses the credit union assisted under the program included:

• 34 sole proprietorships
• 26 corporations
• 37 LLCs
• two nonprofits
• six DBAs

On the banking side, large and small institutions ramped up their response.

One $202 million Massachusetts-based bank booked 296 PPP loans for $17.2 million, with an average balance of $58,073. In addition to those loans, residual business followed in terms of $338,795 in loans and $2 million in deposits. Of all the PPP loans, 16 percent were to new customers.

On a larger scale, a $2 million bank in Pennsylvania booked 2,542 PPP loans for an additional $510 million in balances at an average balance of $201,000. Of these customers, 13 percent were new to the institution. A mix of loans, deposits and insurance products followed the PPP accounts, with 203 loans at $10 million, 678 new deposits for $3.4 million and $3.4 million in insurance offerings.

A $300 million Nebraska bank that launched an aggressive cross-sales campaign toward its 313 PPP loan recipients brought in an additional 346 loans and 1,049 deposit accounts. The PPP loans totaled $23 million; the additional loans brought $79 million while the deposits added $35 million. The success of the cross-selling initiative highlights the need to onboard these new and existing businesses.

Community Component Strengthens Brands

Aside from the financial opportunity, many institutions saw helping small businesses as an element of a larger community-support focus during the pandemic.

Kitsap Credit Union, a $1.3 billion institution in Bremerton, WA, saw the situation as a call to act on their mission statement of “dedicated to the prosperity of our communities by providing personalized experiences, convenient access, and highly competitive products and services” and live their brand positioning statement of “Powering Life’s Opportunities.”

The credit union granted commercial loans prior to the pandemic. Under PPP, 90 percent of the loans they funded were to businesses with fewer than 10 employees, and 10 percent of these loans were to nonprofits.

As of the end of July, the credit union had received SBA approval for 196 PPP loans totaling $10.9 million, with approximately 85 businesses new to the credit union, according to Megan Murphy, business services manager at Kitsap. In addition to the loans, the credit union also received $1.3 million in additional new-money deposits from seven PPP borrowers or related entities. Ten of the new PPP borrowers also applied for a second business loan, one new loan booked, and there were two opportunities for commercial real estate loans, along with merchant services referrals.

“Overall, we have been very happy with the results of PPP for Kitsap Credit Union,” said Tony Bulleri, senior vice president/chief lending officer at the credit union. “Our branches have been making follow-up calls to all PPP loan members and have been receiving very positive feedback,” he said. “There is potential for future residual business and relationships.”

The credit union also participated in other activities to support the communities it serves, according to Wade Pyron, senior vice president/chief marketing officer. One of the ways that Kitsap will gauge the effect of this outreach is by comparing results from a brand study to be conducted later this year with the results of a brand study conducted prior to the pandemic.

A recent Raddon Report article, Key Steps to Enhance Your Financial Institution’s Brand, stresses the importance of featuring loyal customers or members in your institution’s marketing efforts. Using small-business testimonials, focusing on how accountholders’ expectations were exceeded during the PPP loan process, and highlighting instances where staff members went above and beyond to assist local businesses is an effective means of embedding the institution’s brand into the hearts and minds of the communities it serves.

Nutmeg State Financial Credit Union in Rocky Hill, CT, released a statement that the institution already processed over $3.8 million “in funds dedicated to supporting small businesses.”

In the statement, the credit union said it used its own custom technology to streamline the process and keep pace with the application volume. As an educational component, it conducted member webinars in April to help explain the complexities of the program. Follow-up webinars and community panels are in the planning stages, according to the press release.

Delivering on brand will continue to be an important component of attracting new customers and members as Gen Z and millennials turn their entrepreneurial bent into business acumen. As pointed out in a recent Raddon Report article, The Key to Sustainable Success: Delivering an Authentic Brand: “As many financial institutions look to develop a strategy to attract Gen Z, it is important to note that this generation wants to engage with organizations that demonstrate that they care about the world and the communities they serve.”

Financial institutions across the country turned adversity into opportunity for small businesses and for themselves, not only by extending a lifeline to help commerce survive, but by expanding their relationships to help communities revive.