Community banks, by participating in the U.S. Small Business Administration's (SBA) Paycheck Protection Program (PPP), provided forgivable loans to non-customers, and many of these banks are now developing strategies to convert these new borrowers into long-term small business clients.

The PPP program was recentlyextended to August 8, and the Trump administration praised the program as a successful way to distribute urgently needed financial aid to small businesses impacted by the COVID-19 crisis. But this hastily crafted program was not without flaws.

The SBA's E-Tran network experienced multipleoutages, borrowers wereconfusedabout PPP loan terms, and some criticized the program's structure for allowing banks toprioritize certain customers。

Despite the program not being perfect, community banks participating in the PPP demonstrated flexibility, technological capability, and personalized service among larger competitors, playing their role during the crisis.

According toSBA data, as of June 30, banks with assets under $10 billion issued 2.5 million PPP loans, accounting for 44% of the program's funded loans. Banks with assets between $10 billion and $50 billion issued 739,912 loans (19%), while banks with assets over $50 billion processed 1.6 million loans (36%).

Lasting relationships

Community bankers say they hope new customers, some of whom came from larger competitors, will remain long after the PPP becomes a distant memory.

"I hope people don't have short-term memories; they should remember they were in a state of panic," said Lauren Ranalli, president and CFO of First Resource Bank, which issued 350 PPP loans totaling $58 million.

"We saw business owners in tears, fearing for their businesses, and we were the ones who helped them get the assistance they needed," Ranalli told Banking Dive.

Many community banks like First Resource that gained new customers through the PPP are taking proactive steps to ensure their services are remembered after the pandemic.

"We ran a full follow-up campaign, including online reviews, and our retail team is following up with each customer one by one," Ranalli said. "Every one is a sales opportunity we intend to convert... I am very optimistic that these customers will stay."

Noah Wilcox, president, CEO, and chairman of Grand Rapids State Bank and Minnesota Lakes Bank, said both institutions witnessed a large influx of non-customers during the first round of the PPP.

Wilcox, who also serves as chairman of the Independent Community Bankers of America (ICBA), a banking trade organization, said nearly 80% of the 472 PPP applications the two banks received came from new customers. The two banks issued PPP loans worth $44 million.

"We started asking ourselves: 'How do we take advantage of this opportunity?'" he told Banking Dive. "Everything was electronic, so we had good email addresses and mobile numbers, and our marketing team really put together a multi-pronged marketing campaign specifically targeting new PPP customers."

Wilcox said part of the campaign included a short video he recorded himself, thanking new customers for trusting the bank and its team during the PPP process.

"I basically said, these are uncertain times, we understand the stress is high, and we are glad we could provide you with the PPP funds you needed," he said. "I also talked about how we are a relationship-based business model, and we hope to at least have the opportunity to build that relationship, and hopefully by doing so, earn some or all of your business."

Wilcox said the bank followed up with new borrowers via email and through phone or video calls initiated by the loan officers who helped customers with their PPP loans.

"For us, this is still ongoing, but the response so far has been quite good," Wilcox said.

The bank also communicated with small businesses that still held most of their PPP funds.

"We can see the funds are still there. We ask them: 'What's the plan? What can we help with? What questions do you have?'" he said. "I would say, for most people, this is very welcome."

Citizens Bank of Edmond, a $292 million community bank in Oklahoma, processed over 450 PPP applications totaling about $25 million. Its president and CEO, Jill Castilla, said a quarter of those applications came from new customers.

"We really see ourselves as economic first responders, as a channel to provide funds to small businesses," she told Banking Dive. "If one of the unexpected benefits is that we gain more customers, that's great, but that was never the reason we participated in the program."

But she said it is the personalized service and direct access that community banks provide that will ultimately win over new PPP customers.

Castilla has been active on social media since the crisis began, posting her email and personal cell phone number on Twitter so that customers and non-customers alike could contact her directly about PPP matters.

"[JPMorgan Chase CEO] Jamie Dimon might do that—I don't know if he does—but this is what a small institution can offer: access to the CEO, access to decision-makers in the community," she said. "It's hard for large institutions to compete on that."

Castilla's social media activity also led to several collaborations with "Shark Tank" star and serial entrepreneur Mark Cuban.

The Dallas Mavericks owner helped Castilla design an interest-freeoverdraft programto help customers receive government stimulus checks early, and also helped Castilla set up theppp.bankwebsite to help borrowers prepare their applications for the PPP forgiveness portion.

For Republic Bank, a $3 billion regional bank with 30 branches in southern New Jersey, Philadelphia, and New York City, socially distanced in-person visits have become a way to cultivate new customer relationships.

"PPP was a huge challenge and a huge opportunity," said Joe Tredinnick, market president, who said the bank processed about 5,500 PPP loans totaling approximately $750 million.

Tredinnick said 80% of the PPP loans it issued were to new bank customers.

Tredinnick told Banking Dive that he and Republic Bank Chairman Vernon Hill are working together to visit new customers to solidify new relationships.

"Every time we processed a PPP loan, customers said: 'You saved lives, jobs, and businesses.' As a banker, you rarely hear that. So having that experience is very rewarding," he said.

Mindset shift

Wilcox believes that community banks' response to the PPP has helped some small businesses begin a mindset shift.

"PPP helped us reach a group of customers that has historically been hard to move," he said. "They now see that we have the talent, technology, and relationship components. Small businesses are saying: 'Community banks have everything big banks have, but they're more flexible, and they want to understand my needs.'"

Wilcox said the PPP could have a lasting impact on small businesses that turned to community banks for relief.

"I think for most PPP recipients, the memory will not be short," he said. "They will understand who stood up for them."