Financial advisers strongly recommend that small business owners take a proactive approach and assess their accounts to ensure they are safeguarded in the event of a future bank failure.
Are you Exploring Safety Measures for Small Businesses Ahead of Potential Bank Crisis? You are at the right place. Scroll down to read more.
Recent collapses of regional lenders, such as Silicon Valley Bank and Signature Bank, have sparked concerns among small businesses nationwide about the safety of their deposits in other banks. Here are trending Small Business Ideas that you must like.
For entrepreneurs like Melissa Wirt, who founded Latched Mama, an e-commerce company catering to nursing mothers, with a personal loan, selecting the right bank is crucial. Ms. Wirt chose Atlantic Union Bank for her business account due to her relationship with the bank and the convenience of transferring funds from her accounts.
However, during the recent banking turmoil, she worried about the possibility of Atlantic Union Bank failing, which could affect her ability to meet payroll obligations. As a precautionary measure, she opened a second business account with a larger bank.
While experts indicate that most small businesses face minimal risk in a bank failure, as the Federal Deposit Insurance Corporation insures deposits of up to $250,000, certain factors can increase the risk assessment. For instance, small businesses with employees or those funded by venture capital may have more considerable payroll costs and higher cash balances, potentially surpassing the insured limit.
Payroll costs, in particular, represent a significant expense for many companies, with some small businesses reporting monthly payrolls exceeding $250,000 for firms with 50 to 99 employees and 95 percent for those with over 250 employees, according to Gusto, a payroll and benefits provider.
However, it’s worth noting that only a tiny percentage of small businesses in the United States have employees or venture capital backing. The Small Business Administration estimates that only 20 percent of the country’s roughly 33 million small businesses have employees, and just 5 percent have significant investments from venture capital. Therefore, most small businesses will likely stay within the insured deposit limit.
Despite the rarity of bank failures since the last financial crisis, which saw nearly 500 banks collapse between 2008 and 2013, recent research suggests that approximately 200 banks may be at risk due to factors such as exposure from rising interest rates and high levels of uninsured deposits, similar to the conditions that led to the downfall of Silicon Valley Bank.
As such, small business owners are encouraged to be mindful of the risk profile of the banks they choose to do business with, particularly those specialized in unique or higher-risk industries, according to Rebecca Romero Rainey, President and CEO of the Independent Community Bankers of America, a trade group.
In conclusion, small businesses can take steps to safeguard their finances ahead of potential bank crises by thoroughly assessing their accounts, considering factors such as payroll costs and venture capital funding, and carefully choosing their banking partners. Staying informed and proactive can help small businesses mitigate risks and ensure their financial safety in uncertain times.