COVID-19 has been an impactful event for all industries, and the financial industry is among the most affected ones During a time of economic unrest in which thousands of people have found themselves without a job, getting a loan looks like an attractive option to many. However, this involves high risks for the lenders and storefront lenders specifically face additional challenges during a time of social distancing.
How COVID-19 Affected Storefront Lending
Storefront lenders have had to face unexpected challenges during the COVID-19 pandemic. Initially, lockdown measures forced lenders to close for an indefinite time. This led to many of them looking for alternatives such as virtual service options. However, the adoption of these systems takes time and investment, which not every business was able to do.
However, the financial crisis led to people with mortgage payments, pending student loans, and credit card debts to look for loans that would allow them to respond to these more immediate needs. Similarly, small businesses used loans to make ends meet. Lenders such as Storefront Lenders LLC faced these challenges like many others.
Another consideration was that of customers who already had debts with storefront lenders. A common doubt was if they would be able to pay their loans without going to a physical office, and lenders had to meet this need as well.
In addition, lenders had to make sure communication was clear with their customers during this time, which led them to adopt digital at a faster pace. Lastly, it is important to mention that some storefront lenders were better prepared for this, as they had already started to incorporate online options, which have been more in-demand during the past years. This is a trend that naturally grew during the pandemic.
Was Coronavirus a Boom or a Crush for Online Lending?
Online lenders faced additional challenges to those faced by storefront lenders. The fact that there was increased demand didn’t mean the number of loans approved increased immediately. On the contrary, it is well-known that many online borrowers have been rejected by banks, and they inherently comprise a higher risk.
Nowadays, with people losing their jobs and not knowing when they would be back at it, online lenders have had to screen more closely any possible clients. This is because the risk is higher than ever for them in the setting of the economic crisis.
In fact, numerous lenders closed their doors for new clients as previous partnerships ended. This was the case even for internationally established companies, showing the global impact of COVID-19.
Furthermore, other lending companies have had to raise funds quickly as bad loans have put them at risk of bankruptcy.
Interestingly, there have been changes when comparing storefront vs online lenders in Latin America. Here, FinTech adoption has seen an increase of 72%, with digital loan platforms gaining popularity. Whether this trend will continue in the near future remains to be seen, but most experts believe changes during COVID-19 are likely to last.
Storefront Lenders’ Future in Terms of the Pandemic
The future of the lending business after the pandemic is difficult to predict. Different issues could affect how this part of the financial industry behaves in the near future.
One thing to consider is the stock market, which has largely fluctuated during 2020. People who might have been looking for a loan before the pandemic to invest in a new business might be deterred from doing so because of the uncertainty present across most industries.
In addition, many borrowers are only able to pay back their loans thanks to stimulus checks from the government. Furthermore, getting a fair assessment on whether a possible borrower has good credit or not becomes more difficult as predictions about their ability to pay are more unreliable.
Also, prior loans made to small businesses are at risk of falling in default, as even though it was a good loan when it was first made, there is no way to pay back the loan if the business ceases to exist.
Changes that could take place to account for these risks include adjustments to the amount of the loan-to-value. Also, there might be changes regarding the guarantees requested as well as insurance clauses.
Optimistic predictions are based on expectations of a rebound economy, in which retail sales would increase during the next year, allowing numerous businesses to get back on their feet. Furthermore, numerous businesses might be interested in getting a loan to invest in digital, which has proven to be the best way to communicate with customers across all industries.
Storefront lenders will also be likely to offer at the very least hybrid options, meaning an in-person and online model, which would allow them to reach more possible customers as well as current clients.
Only time will truly tell how lending businesses will be affected by the COVID-19 pandemic in the near and long-term future. Meanwhile, the recommendation is to observe and adapt to meet the new needs of customers.