Banking Tips for Small Businesses Owners

Last month, Silicon Valley Bank (SVB), a California-based lender that typically catered to the tech industry, collapsed after not having enough cash to pay depositors during a bank run. This was the biggest U.S. lender to fail since the 2008 global financial crisis – and the second-biggest in history. In 2021, during the pandemic, SVB received more deposits than they could lend and subsequently invested in U.S. Treasury securities. Then in 2022 and 2023, interest rates increased and caused the value of those securities to plummet. SVB sold those securities at a $1.8 billion deficit which prompted venture capital firms to recommend their companies pull out of the bank. The withdrawals were so large, regulators had to shut the bank down to protect depositors.

By the end of 2022, SVB only held about 0.91% of all banking assets, so it's unlikely this will have an effect on other banks. Still, the collapse highlights the importance of tracking bank investment portfolios and the reevaluation of business banking and lending practices. Small business owners should consider taking time to think through ways to mitigate risk such as:

• Diversifying funds into U.S. securities or bonds
• Spreading business finances across FDIC-insured banks (FDIC automatically insures up to $250,000 in deposits “per depositor, per insured bank, for each account ownership category”)
• Working with organizations like IntraFi Network, a Certificate of Deposit Account Registry Service (CDARs) that ensure finances above FDIC coverage by placing deposits in checking accounts, money market deposit accounts and CDs in FDIC banks in its network
• Depositing excess funds in credit unions, which also insure individual deposit accounts up to $250,000 through the National Credit Union Administration (NCUA)
• Regularly evaluating the relationship with your banker and banking services by reviewing quarterly and annual changes to the bank’s total deposits, available capital, or cash flow on the FDIC website. Also consider searching the Federal Reserve website to see if your bank has been required to take corrective action to avoid financial collapse

It is important to remain up to date on your bank’s financial health. Reach out to your accountant and financial advisors to create a strategy that equips your business to thrive amid any banking surprises.

Additional links:

• https://www.pbs.org/newshour/economy/analysis-what-silicon-valley-bank-collapse-means-for-the-u-s-financial-system
• https://www.inquirer.com/business/small-business/silicon-valley-bank-collapse-advice-for-business-owners-20230321.html
• https://apnews.com/article/small-business-banking-bank-collapse-4683ea039379ae4ee5dc28ca39bbff26
• https://www.bankrate.com/banking/savings/ways-to-insure-excess-deposits/#brokerage-accounts
• https://www.mybanktracker.com/banking/faq/how-determine-banks-financial-health-254033#:~:text=You%20can%20view%20the%20quarterly,to%20cover%20any%20potential%20losses

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