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Mitigating Coronavirus Risk in Small Business Lending

March 30, 2020 by Brodie Oldham


As I sit down to write this in the dining room of our house in Texas, it strikes me how working from home can be so challenging for productivity and connectivity. When I first began working remotely, I was constantly distracted with honey do’s, family, and self-created distraction. It took some time not to be distracted by television or the ever-present refrigerator.

In recent weeks, the corona-virus (Covid-19) has spread, taking the lives of thousands of our friends and family members and weighed on the minds of millions of Americans, and it’s already had a major impact on small businesses as the as the number of initial unemployment claims jumped from 281,000 last week to over 3.28 million.

Unemployment claims jump to 3.28mAs the virus continued to spread in the US we saw travel bans, conference cancellations and the term “Social Distancing” solidified in the lexicon. This has taken a toll on transportation and services industries, and the wider restrictions are impacting non-essential businesses everywhere.

When the WHO eventually classified Covid-19 as a global pandemic, we have seen,   stock market volatility, panic buying at grocery stores, remote working as the new normal and major supply chain disruptions. Federal and local governments began to take more action placing more restrictions on international travel, port operations/ shipping, and trade, as major cities like New York, Dallas, and San Francisco ordered citizens to stay home.

This event has increased pressure on manufacturing, in the US, through supply chain shortages and distribution challenges. These disruptions have been going on for the better part of a year, due to the trade war, but a sudden slowdown in key components from China compounds the impact of what we are now dealing with to include the demand side of the equation. Universities, local school districts and extracurricular organizations enacted cancellation strategies to help slow the spread of the virus. These social distancing activities have slowed retail and service industries.

Mitigating risk as world events unfold

In the data we have analyzed here at Experian, small businesses have been pivoting in the lending products they have been originating over the past few quarters looking for longer term more advantageous rate loans that can create a more stable outlook for their businesses. This activity was heightened in the past year when international trade agreement negotiations and tariff activity was at its peak. Combined with an aggressive $2.2 trillion coronavirus relief bill, stability in longer term funding will help small businesses weather a short term slow down. Consumers and business owners opened more unsecured credit card debt in the 4th Quarter of 2019 that surpassed the 2007 pre-recession origination volumes.

Bankcard originations in billions
Source: Experian

The surplus of available unsecured credit facilities, taken advantage of by small business owners, should add an additional level of security to small businesses. What we are seeing is not the case for all small businesses. Application activity is up significantly and lenders are struggling to keep up with the volume. Small business lenders are also concerned the underwriting criteria in place, prior to the downturn, may not match the risk associated with these new applicants. Another expected outcome from the virus escalated economic slowdown and social distancing will be the spotlight on foot traffic, and its sudden decline in impacted regions. This decline is pushing companies to invest more in their digital footprint to continue growth even if consumers are not physically in their stores.

Ramping up to mitigate a slowdown

What can be done as a small business community to support the US small business ecosystem? Experian has been preparing for the next slowdown for several years. Our small business lending clients have been ramping up usage of more advanced analytic tools and preparing their account management processes to more effectively help their customers remain healthy even in a slower economic cycle.  A recent study that Experian commissioned by Forrester Consulting said that many commercial risk managers want to modernize.   Experian has data, software, and hosted platforms that can help you catch up quickly if you feel behind, or supercharge your current processes to mitigate loss and segment deeper to help more small and emerging business segments to remain strong and healthy. The tools are predictive, but the insights are what will drive smart strategic decisions. Experian offers consulting from industry experts that will guide you through the ins and outs of your journey through the slowdown.

COVID-19 U.S. Business Risk Index

Experian recently launched a free dashboard tool called the U.S. Business Risk Index. It was developed to help businesses better understand the impact COVID-19 may have on their commercial operation based on several key factors. It combines business risk, anticipated impact on business industries and real-time COVID-19 case data to help businesses better simulate various impact scenarios down to the state level to help develop enterprise strategies. Click to view the U.S. Business Risk Index.

View the Experian Risk Simulator tool

Help our small business clients get through it

The corona-virus crisis will come to an end, hopefully soon, and these small businesses, we do business with, will remember what they went through for a long time. They will remember the partners who showed empathy and came prepared to help.

Our goal is to help the small business to thrive. There will be some challenges in certain industries. Our goal is to help you mitigate risk but to keep investment in small business open and running. Your efforts and success in supporting small business through the slowdown will mean a stronger economy and a faster recovery.

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