The pandemic-related downturn is threatening microbusinesses’ very survival, with many turning to credit unions to seek assistance, says Andrea Mosher, senior vice president of lending at Lake Trust Credit Union. In the latest Credit Union Tracker, Mosher explains how remote check capture and digital payroll processing helps accelerate access to funds.
Credit unions (CUs) across the country have sprung into action to support SMBs and microbusinesses with fewer than 10 employees during the COVID-19 pandemic. Closed locations or reduced hours of operation have limited in-person contact at bank branches, leaving CUs to mainly rely on digital loan applications while assisting those seeking funding from the Paycheck Protection Program (PPP.)
CUs helped guide PPP loan applicants onto secure online portals, where they could upload necessary documentation. Many CUs used electronic signatures to finalize the application process in lieu of having applicants come into branches. Prospective borrowers’ applications were then uploaded to the Small Business Administration’s (SBA’s) E-Tran loan origination system.
Brighton, Michigan-based Lake Trust Credit Union has been supporting small businesses with PPP loans and has processed 250 loans to date. This has helped its staff recognize potential opportunities for improvement, according to Andrea Mosher, senior vice president of lending.
“Trying to walk through the application process with a lot of small business owners who weren’t sure where to find the data for their payroll and other things for processing for the application was revealing,” Mosher said. “Some small business owners are still using paper contracts and sending documents via FedEx envelopes.”
With the discovery that members needed help navigating the digital world, Mosher recognized a chance for her team to take action and work toward greater engagement.
“This really opened our eyes to an unfulfilled need that, if met, would help more businesses be successful long-term and stay viable,” she said. “We are really committed to figuring out how we can help fill that gap.”
Adjusting Operations for New Realities
Lake Trust, like many CUs, shifted the focus of its operations to primarily leverage drive-thru and video teller technologies as a safety precaution when the COVID-19 pandemic began to unfold. The CU has executed a phased reopening of 20 of its 22 locations within the past month, selecting a handful of branches to serve as pilot projects for testing safety procedures. One location has reopened for drive-thru service only, and two other locations remain closed.
“We wanted to be sure we had made the proper adjustments and that our staff felt safe and comfortable,” Mosher said.
The phased reopenings have given staff time to adjust and address any issues, she said. “The most challenging part of all of this is the unknown for both our employees and our members,” she said. “We don’t know the long-term repercussions and effects on consumers and businesses based on what’s happened, nor do we have models to tell us what to expect.”
All types of financial institutions (FIs) around the nation are grappling with that unknown, and grasping at how to begin planning. One of the biggest challenges at Lake Trust, according to Mosher, is anticipating members’ future needs and determining how the CU should plan product and service offerings around those needs. The credit union is also waiting to see how small businesses’ needs will emerge once PPP loans and disaster relief funds begin to dry up.
“Once those types of funds are exhausted, we’ll start to better understand what needs small businesses have in terms of day-to-day operations,” Mosher said. “We have seen loans pick up a little bit in the last few weeks with more normal activity, and it seems like businesses that have now been open for a little longer are starting to feel more secure moving ahead with plans or things they had projected to do.”
Small businesses have recently been more closely examining lines of credit and working capital as they try to prepare for the unexpected, Mosher said. The CU is also receiving requests for the five types of loans it offers, including vehicle loans, secured loans that could be used to purchase equipment using collateral, unsecured funds based on a borrower’s creditworthiness and business credit cards. The average loan size is about $20,000.
Microbusiness Support Services
Credit unions that find ways to differentiate their services from competitors can benefit in the current competitive market. Lake Trust is one of two credit unions in Michigan that handles treasury services, which Mosher said has been a plus for servicing small businesses.
The CU offers wire-based services, automated clearing house (ACH) services, remote deposit capture services and payroll processing tools to increase businesses’ efficiencies, Mosher said. The CU also relies on partnerships with nonprofits to help SMBs write business plans, run cost projections and support human resources or marketing functions.
To better serve the microbusiness community, Lake Trust is working toward offering a range of support services rather than developing a single traditional product. The CU has tapped into its network of business owner members through advisory panels to run surveys, aiming to better understand the needs of microbusinesses. It has also reached out to local chambers of commerce that are being contacted by businesses for help with resources.
“We often find that businesses struggle with things that large companies take for granted, like cybersecurity and data protection,” Mosher said. “The next step of our journey is to develop a resource center with people on our team who can help small businesses engage in those kinds of things.”
Credit unions are striving to assist their communities’ small business recovery efforts in a variety of ways. Lake Trust launched a crowdfunding campaign in early June to help SMBs stay afloat during the pandemic-induced economic downturn. The CU matched crowdfunding efforts across the state of Michigan dollar-for-dollar, up to $1,000 per donation. The campaign lasted two months and raised nearly $100,000, with the CU providing $40,000 in matching funds, Mosher said. Businesses used the funds to purchase personal protective equipment (PPE), pay invoices and buy supplies.
Engaging small businesses and microbusiness members in community crowdfunding and providing coaching and mentoring can help credit unions like Lake Trust build long-term relationships when members need the support most.
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