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As recently as two years ago, banks and credit unions really didn’t lend to true Main Street. They were focused on larger businesses who needed cash infusions of $1M+, had good credit, plenty of collateral, pristine cash flow… and really didn’t need a loan. Why? Because there wasn’t a lot of (any?) technology used in the process, which meant it cost the same to process a loan for $1M as it did a loan for $10,000, so banks simply serviced larger loans and relied on relationships to keep business flowing.

Then the pandemic hit. And changed everything. While lockdowns and mandates dealt a heavy blow to the 70 percent of small businesses that shut down, the knock-out punch came when lenders—every single lender—turned off the spigot of cash, which effectively froze Main Street.

When the Paycheck Protection Program started, the closed banks needed to find a way to accept PPP applications on-line. For the most part, fintechs, Lendio included, became the bridge for lenders’ technology gap. Banks had a pretty steep learning curve in terms of technology, but the experience forced them to take a serious look at APIs, workflows, and digitization. They liked what they saw and many of them aren’t turning back.

This includes Texas National Bank (TNB), one of the over 300 traditional banks Lendio helped during the pandemic. TNB’s President, Joe Quiroga, was kind enough to sit down with me to talk about the PPP experience, and how it’s changing the way his bank approaches small business lending going forward.

BROCK: The pandemic – you’ve said that it helped you see a better approach to systems and processes that your bank used before the pandemic. Can you explain?

JOE: We had a day where we needed to book 300 loans on our system – we had never had to book 300 loans in a month prior to the pandemic much less in one day – and I just saw this escalating. I knew that maybe we could book 300 loans manually today, but tomorrow, if we had 500 or 1,000, there would be no way we could do that manually typing all of this into our system.

BROCK: So you made changes?

JOE: Yes. That’s when the importance of automating, integrating, and sharing data hit us. Eventually, we were at the point where we were booking 1,000 loans a day on an automated basis. It was just … happening. We had no human physically typing these loans into our core system. We knew it was a better way of doing things now and going forward.

BROCK: How long would this evolution have taken without the pandemic?

JOE: We’re a smaller institution. We’re dynamic and we’re younger, so we were headed down that path already but I think what the pandemic forced … it accelerated a 5-year project into a 1-year turnaround.

BROCK: How did these changes impact your bank?


JOE: When you compare us to the traditional bank in Texas or even in our region, we processed 5 to 10 times as many PPP loan applications relative to our size. It really paid off for us and we will now deploy that strategy toward small business lending. I’ve called ‘small business lending’ the last frontier of community banking—these are the only types of loans that we’re hanging on to.

It works to have a partnership because we have something fintechs don’t have…we have capital and fintechs have the right process and technology. That’s how this marriage comes together to say ‘Hey, we can coexist.” Quite frankly, we can now fund loan transactions that previously we didn’t even see in our backyard. That, to a community banker, is the real evolution.

A new kind of borrower

What Joe didn’t mention, however, was how much the market needs this evolution. More than 4.4 million new businesses were created in 2020 (source: U.S. Census Bureau). Last year, that jumped up to 5.4 million. Compare that to 3.5 million started in 2019 on the eve of the pandemic. BTW, 52 percent of these new businesses launched with less than 10K in funding and nearly half of that group had less than $5,000 when they opened their doors.

The majority of these new businesses rely on existing cash, savings, and family/friends for capital to start. But some are also realizing that there are new lending options available that simply weren’t there prior to the pandemic.

We’re seeing a rise in lenders embracing the gig economy and underwriting loans that straddle the fence between a personal loan and a sole-proprietor loan. And, like Joe said, banks didn’t really “see” these super-small businesses in the past. While there isn’t a lot of good that you can say about a global pandemic, PPP loans pushed this evolution since so many of the people who received PPP loans were in fact sole proprietors. And for those who started business during the pandemic, there’s never been a better time to get access to capital. Optimism on Main Street is strong and growing.

How lending is improving for the small business, too

We worked with thousands of business owners on PPP loans. For many, it was their first time ever applying for a loan outside of a traditional bank or credit union. For some, it was their first attempt applying for a business loan.

Regardless of whether they were successful in securing funds, much of the feedback we received from the applicants centered on how easy and how quickly we were able to process their paperwork. Clearly the PPP process had its share of snags, but it also introduced small business owners to a world of lending that they either didn’t know about or perhaps never felt comfortable using before.

Today, that leaves us with business owners with more confidence and a better understanding of how to access capital. They’re leveraging their access to cash in ways that have never been seen before in our industry. While uncertainties exist, including high inflation, supply chain slowdowns, and the global effects from the war in Ukraine, small businesses have a renewed focus and are better equipped to handle whatever lies ahead.

We’ve got a long way to go to get back to where we were before the pandemic, but there’s no doubt that Main Street and the financial institutions that support it are both more efficient and more resilient than ever before.


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