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By Margaret Lindquist | May 2020
In the spring of 2020, the coronavirus pandemic attacked the global economy with alarming and unprecedented speed—shuttering businesses and cratering consumer demand. In the period between the first shelter-in-place order in the United States (California on March 19, 2020) and May 22, 2020, more than 40 million American workers filed unemployment claims. One in four US citizens has lost their job as a result of COVID-19.
As the pandemic took shape, the US federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This relief package included the Payroll Protection Plan (PPP), a US$659 billion loan program designed to help small businesses keep their workforce employed during the crisis. The program allowed employers to borrow approximately 2.5 times their average monthly payroll. Additionally, the loan could be forgiven if the borrowed funds were used to keep employees on the payroll.
Demand for the program was almost unbelievable. According to research from the American Bankers Association Data Bank, the loans have reached between 48% and 84% of small businesses in each state. The Small Business Administration (SBA) stated that the equivalent of 14 years’ worth of loans were processed in 14 days. “What’s happening here is unprecedented. Over 5,400 financial institutions—one-third of the lenders in the US—are supporting almost three million borrowers with a lending product that didn’t exist two months ago. Achieving that amount of support for borrowers requires an incredible amount of collaboration,” says Keren Moynihan, cofounder and CEO of Boss Insights, a big data financial technology (fintech) company that provides lenders with a complete view of their business customers and accelerates the loan process from months to minutes.
But launching a financial program of this size this quickly is challenging stuff. The first round of the PPP faced several challenges, including technology problems, uneven distribution of funds across the economy, and massive demand that depleted the program in a matter of days. “Legislation that usually takes three years was put out in 23 days,” says Moynihan.
The turmoil around the granting of the loans, however, is a potential preview of the challenges the program will face when the eight-week loans come due in late summer. Employers will need to prove to the SBA that they used the funds to keep their employees on payroll or to pay for other critical expenses, including rent or mortgage payments and utilities. “The idea was, ‘Hey, let’s get these loans out quickly and worry about compliance later,’” says Sanjay Mathew, head of the Oracle Fintech Innovation initiative. “But the compliance piece is going to kick in when the SBA is asking whether the money has been used for the right purposes.”
Streamlining the compliance process is the biggest challenge facing banks at this time and Oracle is working with partner Boss Insights to provide banks with the platform they need to speed the process and reduce fraud. Banks generally adopt fintech solutions slowly, and complicated vendor onboarding processes don’t always allow companies to incorporate tools as quickly as they’re needed. With COVID-19, however, there is an irrefutable need to go digital and reduce the number of face-to-face transactions. Fintechs no longer have to prove the value of digital technologies; however, they need to pitch the right solutions to financial institutions. Through Oracle Fintech Innovation, Boss Insights leaders and technologists connected with people in Oracle’s Cloud Solution Hub, which helped move the Boss Insights application onto Oracle’s generation 2 cloud infrastructure in eight days—a remarkable achievement in what Mathew refers to as “pandemic time.”
“ Lenders are concerned with supporting their borrowers and reducing their exposure risk. If borrowers aren’t approved for forgiveness and they don’t pay you back, the SBA guarantee protects the lender from exposure, but only if criteria are met.”
The platform that Boss Insights and Oracle have introduced is called CARES/PPP. It automates the PPP application process; performs real-time verification of payroll, rent, mortgage, and utilities payments; and provides the documentation borrowers need to support the SBA’s forgiveness criteria. The platform is aimed at simplifying the work of loan review and reducing fraud. Even more important, the solution will accommodate changing legislation, because the PPP faces an expansion and a new infusion of funds. The comprehensive solution includes capabilities such as Oracle Standalone Cobrowse Dynamic Agent Cloud Service and Oracle Live Experience Cloud Service which allow banks to assist applicants remotely by monitoring their application status with cobrowse capabilities and digitally verifying identities. Even after the PPP ends, Boss Insights’ platform will adapt to manage regular business loans. The application supports many accounting packages commonly used by small businesses, including Oracle NetSuite and QuickBooks, with prebuilt accounting integration APIs that allow banks to verify small business accounting directly from the loan application.
According to Moynihan, people are confusing the forgiveness calculation, which is the borrower’s concern, with the SBA guarantee of the loan, which is the lender’s concern. Banks are wondering whether they need to worry about the forgiveness criteria and calculations that will determine loan forgiveness—in other words, if borrowers need to prove they spent money on allowable expenses, is that the bank’s problem?
“Lenders are concerned with supporting their borrowers and reducing their exposure risk. If borrowers aren’t approved for forgiveness and they don’t pay you back, the SBA guarantee protects the lender from exposure, but only if criteria are met,” says Moynihan.
The Boss Insights technology team augmented their standard loan API platform to cover the unique PPP rules. Because the platform allowed for automation of any business lending facility, it was easy to automate the entire PPP forgiveness process, from gathering the data, to the calculation and preparation of the report, to delivering the report to the SBA. Without the CARES/PPP platform, banks will need to review loan recipient records manually after borrowers complete an eleven-page form in triplicate. The process been compared in the media to preparing taxes.
“Banks are going to need to verify last year’s payroll statements, so it’s an eyeball activity. Bankers will look at a set of documents, say, ‘Okay that looks fine,’ and then move on to the next set,” says Mathew. This type of rote, manual process will stress banks’ back-office resources and make it easier for fraud to enter the system.
Leading trade organizations such as the American Bankers Association, banks, and borrowers are asking the Department of the Treasury to make forgiveness criteria easier to meet, and the Independent Community Bankers Association of America is urging policymakers to provide more guidance and answer many of the questions that have arisen around loan forgiveness. The speed at which the CARES Act was passed means that elements are being changed and clarified on a daily basis; any tools that banks adopt have to be agile enough to accommodate a great deal of uncertainty.
Mathew anticipates another unexpected result of the PPP: a change in attitudes about small banks. “Smaller banks are better at integrating new solutions and better at working with third-party providers,” he says. “And customers are going to be looking for banking that has a strong digital presence; people aren’t going to want to walk into a bank branch if they don’t need to.”
The equivalent of 14 years’ worth of loans were processed in 14 days, according to the Small Business Administration.
Moynihan’s recent conversations with banks are very different than they were six months ago. “When I’m on the phone with banks right now, we’re not having PowerPoint conversations and talking about a hypothetical need,” says Moynihan. “I’m showing them a two-minute video and we get into serious conversations in the first call. The collaboration that I’m experiencing with Oracle, we are experiencing with banks. We’re presenting our technology and they’re making an evaluation and making the decision quickly.”
Going forward, Moynihan’s biggest concern is that this is a temporary reality. “The industry is funneling US$659 billion to three million companies through 5,400 banks, credit unions, and alternative lenders with children running in the background and with people being honest about what they can do and what they can’t do,” she says. “That type of collaboration is really what’s required to serve businesses even beyond the current pandemic crisis. That’s what I hope for.”