Silver Linings: PPP Drives Growth for Startup Banks

by | Sep 14, 2020 | Blog | 0 comments

Small business owners rejoiced when the Payment Protection Program (PPP) was revealed in March. Just as the pandemic began to cripple businesses, the program provided an opportunity for small businesses to continue to meet payroll, even when little revenue was flowing in. PPP funds were distributed by the SBA (Small Business Administration) to banks, who would then dole them out to businesses until the funds ran out.

The catch: The massive influx in demand for these funds caught large banks flat-footed. The flood of PPP applications caused some internal loan approval systems to crash and wait times for those seeking the loans skyrocketed. To make matters worse, speculation arose that some customers were given preferential PPP treatment based on their history with the bank. This, of course, led to frustrated, panicked business owners.

Accordingly, many business owners sought PPP funds elsewhere and searched for newer, more up-and-coming banks to assist them. Startup banks, with smaller customer bases, were able to more easily distribute the funds as compared to the traditional titans of the banking industry. Not surprisingly, small business owners, happy with their access to the PPP funds, began to switch their accounts over to these smaller startup banks. These businesses were willing to sacrifice some of the fancier technology features associated with large banks for better, customized customer service offerings found at smaller banks.

In fact, as reported in the St. Louis Business Journal, small banks in the U.S. grew loans by 7.2% during the second quarter [of 2020] compared with a decline of 1.3% in loans at big banks, according to an S&P Global Market Intelligence analysis. The fact that community banks are outperforming big banks reinforces that small banks’ step-up strategy and nimble, customer service-centered approach has served them well. Moreover, this growth is likely serving as a wake-up call for large banks about the importance of customer relationships and responsiveness.