Unprecedented times call for ‘out of the box’ solutions: Dealing with the additional lending pressures during a pandemic
March 2020 saw the US unemployment rate rise to 13.2%, the highest rise seen in the last 50 years in the US. COVID-19 has brought 42.6 million Americans to file for unemployment benefits. Economists have warned that the financial instability COVID-19 has brought with it could see an even harsher spike in unemployment rates in the following months.
President Trump signed an $8 billion emergency spending package making this the largest stimulus package in US history. Much of the money will be extended in the form of a grant. According to the plan, banks will be able to process cash assistance quickly, either through the SBA- Small Business Administration or through a new program that will be set up specifically to administer some of this money. The deal includes a $350 billion “Paycheck Protection Program” for 30 million small businesses as well as a $454 billion fund for a new lending agency. Direct payments will also be made of $1,200 to millions of individuals who earn $75,000 or less, and an additional $500 per each child. A $500 billion fund has been developed to help companies during this time, which includes loans to hard-hit sectors such as the airline industry.
The US government has released various stimulus packages to help individuals and businesses navigate the financial hardships brought on by COVID-19. March 27th, 2020 saw the US federal government sign a new COVID-19 relief bill, the CARES – Coronavirus Aid, Relief, and Economic Security (CARES) Act, created to help support businesses during these unprecedented times. Here are the following government initiatives set to help the US economy: The Paycheck Protection Program forms part of the CARES act.
Close to $350 billion has been placed in the plan to help provide US small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. This means that all small business is eligible to apply for a loan that has a maturity rate of 2 years and an interest rate of 1%. This loan is also not just for small businesses but also for sole proprietorships, independent contractors, and self-employed individuals. No loan payments will be needed for the first 6 months and the loan will cover any expenses from the 15 February till the 30th of June 2020. Application deadline dates differ between sole proprietors and self-employed individuals; however, all applications need to be submitted on June 30th, 2020.
The key issue here is that of timing. Lenders are inundated with loan requests and do not have the manpower needed to cope with the influx of requests. The program is designed to have the loans ready within 10 days, however not all SMEs have been able to access the funds within the promised time frame, some not even getting their requests processed at all. So far 1.6 million SMEs have requested PPP funding. Larger National banks are struggling to keep up with never seen before demands placed on them, in a time where workers must work remotely. With the second round of funding will see even more pressures placed on banks to meet tight deadlines and process a plethora of loans on tight deadlines.
PPPs and other bills of this nature and size being rolled out in such a short amount of time will face several challenges, one of them being the disbursement of direct payments to individuals and states having to disburse a record number of unemployment insurance claims. These will require additional support as already the demand has been so high that certain US government websites have crashed due to high volumes of traffic to their websites. The administrative demands of the loans themselves will also require additional support to process and vet the thousands of expected applications. There is a definite need for trained underwriters, customer service reps, and auditors. It will be important for all calls to be routed to Customer Service induvial, who can handle questions and keep customers updated with the status of their application and finding of loans. Support will also be needed to ensure compliance is being adhered too.
Compliance will be key in ensuring that laws and regulations are adhered to, a necessary function especially during a time where increased risk and exposure is rife. The need for additional compliant underwriters would improve the ability to handle influxes of applications that will require processing. Additional auditors are also necessary for various spot checks that will need to be conducted in KYC reviews.
Audit services for the Government will be pivotal to see what advances are forgivable and which are not. Audit of pandemic employment insurance for consumers normally not qualified for unemployment as well as audits if the $1200 payouts will need to be conducted and done so effectively and efficiently. A separate set of auditors will also be needed to follow up with those who received funding to ensure that the applications for forgiveness are handled properly and adhere to the originator guidelines (75% on payroll and 25% of rent utilities and benefits – among others).
Coping with customer complaints and communication is another area in which additional resourcing will need to be allocated. Through SBA, the possibility to provide follow up services for benefits that were never received will be required, as well as communication around payment holidays/deferrals.
Banks will need to ensure that loans, credit cards payment that were delayed commences again at the appropriate time. Student loans are an example of this. All loan and interest payments would be deferred through September 30th without penalty to the borrower for all federally owned student loans. These are deferrals and not forgiveness. There could be opportunities to audit these programs for the government and where appropriate, use collectors to go after missing repays after 9.30.20. Collection services will also be required for anything that must be pursued as a result of audits done above.
The demand for contingent workforces is a key trend that we are witnessing. Permanent staff is turning to contingent roles as unemployment is the US rises to extreme heights. This trend is one that is expected to grow post-COVID -19 as organizations will be outsourcing contingent workers on a project basis to keep running costs low. Now more than ever, those in financial services will be inundated with remuneration claims, mortgage holiday requests, loan approvals, and a plethora of other government-related claims and policies, that they will need to vet, process and distribute. The additional demand will require contingent workforces to step in and ensure that all the additional work is done so effectively and efficiently. We can already see many financial organizations starting their resourcing efforts in hopes that they will be ready to meet the increased demand already placed on them.
The post-COVID-19 world will present enormous amounts of opportunities for those who are prepared, and many are starting their preparations to transition into new market norms by equipping themselves with contingent workforces. The time is now, and many have started their endeavors of recruiting these contingent remote workforces, to ensure they will be ready for when the new wave of new work comes in.
For over 30 years Momenta has deployed skilled contingent professionals within the Financial Services especially during times of crisis when organizations need to implement contingent workforces on a deadline.
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