American Banker: Small businesses can’t find workers. Lenders offer help.

Banks and fintechs are working to help small businesses overcome the great resignation by providing capital to fund bonuses and higher wages.

 

“The best way to attract employees is through compensation,” said Kathryn Petralia, co-founder of Kabbage. “And it’s expensive to pay people more than you were paying before. Whether it’s the smallest business or a large corporation, compensation impacts cash flow.”

 

Kabbage, which was rebranded as “Kabbage from American Express” after American Express acquired the fintech in 2020, recently launched Kabbage Funding, which offers lines of credit designed for small businesses. The product is aimed at a variety of business needs, but shortages resulting from “the great resignation” are particularly acute at small businesses, Petralia said.

 

Nearly half, or 48%, of small-business owners reported having job openings they could not fill, according to a monthly job report for November from the National Federation of Independent Business, which says the 48-year average is 22%. A quarter of small businesses plan to hire in the next three months, down one point from the prior month but still the third-highest reading the Nashville-based NFIB has ever recorded. Forty-four percent reported raising compensation, steady from the prior month and the highest percentage on record, according to the NFIB. Thirty-two percent plan to raise compensation in the next three months — also a record.

 

“One of the first things I thought of when we launched the new line of credit product actually had nothing to do with cash flow,” Petralia said. “A lot of these businesses simply don’t have enough people to work for them.”

 

Kabbage Funding offers lines of credit ranging from $1,000 to $150,000. The line of credit follows other products Kabbage has added to expand its range of financial services, including a checking account that launched during the summer.

 

It’s a problem other lenders and acquirers have noticed, and they are tweaking their strategies as a result. PayPal, Stripe and Square have added technology that monitors cash flow problems, including payroll shortages and inventory optimization.

“It’s a real issue, and labor shortages were becoming a problem even before the pandemic,” said Joe Camberato, CEO of National Business Capital, a Bohemia, New York-based small-business lender that has originated about $1 billion in financing since its founding in 2007.

 

National Business Capital has added consulting to lending in an attempt to help small businesses find employees.

 

There is also an opportunity for banks to address the demand for capital to hire new staff through credit that funds bonuses or higher salaries, said Brian Geary, president of New York-based Linear Financial Technologies, which supplies small business lending for banks such as PNC Financial Corporation, Citizens Financial Group and BancWest Corporation.

 

Banks are battling fintechs to attract small businesses, often using a mix of digital lending and more traditional hands-on consulting to take advantage of the higher service ratings banks enjoyed over fintech lenders during the Paycheck Protection Program.

 

“What we’ve been helping the banks do is bring a similar experience [as] fintech lenders, paired with the resources of the banks,” Geary said, adding the labor shortage is both a function of the “great recession” and an overall growth in new businesses.

 

About 4.3 million registrations were made to start new businesses in 2020, reports The New York Times, citing data from the Census Bureau. That’s up 24% from 2019, and 2021 applications are on track to surpass 2020’s total.

 

“Part of the great resignation is people leaving their jobs to start their own businesses,” Geary said, adding that contributes to a need for funding to hire people, along with funding other business expenses.

 

Like Kabbage, National Business Capital has reported an increase in the use of small-business credit to find new staff. The lender also hosts webinars on corporate culture that are designed to help small businesses. The programs address issues such as public perception, encouraging business owners to monitor their profiles on job search sites such as Indeed and Glassdoor.

 

“Small businesses are obtaining financing for growth, but also inventory and layout,” Camberato said. “But we’re also seeing people borrowing to finance onboarding staff or salaries.”

 

National Business Capital also relies on consultants to improve its own internal culture as it addresses its own challenges in hiring and retention — an issue that’s also impacting other financial institutions amid record resignations.

 

“Just getting people to go to work won’t solve these problems, but there is a need for capital to address the labor shortage,” said Peter Wannemacher, a principal analyst for digital banking at Forrester Research in Boston. “The labor shortage is sort of an ‘aftershock’ of the pandemic.”

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