Over the past month, there have been numerous conversations about the impact of COVID-19 sending the global economy into a recession. As more and more “shelter in place” orders are issued across the country, small businesses (especially those in the hospitality industry), are struggling to stay afloat.
According to a new Goldman Sachs survey, 96% of small businesses say that they have already been impacted by COVID-19. As an end to the shutdowns still remain unclear, many businesses are finding it difficult to pay their loans.
As for the employees at these businesses, several have been laid off and are worried about how they’ll make it through these tough times. According to the Bureau of Labor Statistics, 16.82 million people worked in the leisure and hospitality industry in January 2020. The Labor Department recently reported that more 6.6 million people filed new unemployment claims during the week of March 23, 2020. These newly out-of-work people are worried about their upcoming mortgage, auto, and personal loan payments.
How lenders respond to this challenge will be remembered. It will set the tone for relationships with current borrowers and future potential borrowers.
As interest rates hit historic lows and Congress passes a $2.2 trillion dollar stimulus package (the largest in US history) to support the economy through the COVID-19 economic uncertainty, we wanted to take a look at the current lending market through the eyes of our clients. This is how they’re helping their businesses and out-of-work borrowers during these tough times.
How can lenders help clients who are struggling?
Federal regulators are already stepping in. For the next twelve months, Fannie Mae and Freddie Mac will reduce or pause mortgage payments for those financially impacted by COVID-19.
Other lenders are offering refinancing options—a welcome relief for many borrowers. In mid-March, applications for refinancing increased by 79%.
“During these times of uncertainty, our customers really need the savings from refinancing,” said Joseph Flannery, founder of the online mortgage marketplace SELFi. He’s hoping that Fannie Mae, Freddie Mac, and state/local governments will adopt e-closings to avoid in-person notaries for customers who want to refinance their loans.
Lenders should also be thinking about their entire family of borrowers, not just current ones.
“We are looking at this crisis in terms of the past, present, and future for our clients. In terms of the past, we are working hard to structure loan deferrals that will reduce the cash crunch businesses are currently facing,” said Bryan Doxford from Pursuit.
Bryan also told us that for present business financing solutions, Pursuit is working to place borrowers into one of the disaster loan programs that have become available. This will provide businesses with financing that can support their reduced operations while protecting Pursuit’s portfolio. Immediately following Congress’s passage of the new CARES economic relief act, CSTMR partnered with Pursuit to quickly launch two new lending relief programs for businesses.
“We are also already thinking about the future when our disaster relief work turns towards recovery,” Bryan says. “It’s not too early to think about what businesses will need when this crisis is over.”
Let’s get through this together
By supporting your small businesses and individual borrowers during this crisis today, you can help them stay afloat until the situation improves. You’ll also prove to them that you’re a company that cares about humanity, not just your bottom line.
If you’re a lender, we’d love to hear how you’re responding to the current state of the marketplace. And if you’d like to brainstorm ways to reach and help borrowers in these uncertain times, let me know. You can schedule a consultation with me and we’ll talk about it.