For small businesses which were keeping their money at Silicon Valley Bank — which collapsed last week — the excellent news is that they might be made whole. The same holds true for patrons of Signature Bank, which was shut down by regulators Sunday.
Yet they now need to search out one other place to maintain their money — and so they and other small firms may fear an analogous calamity elsewhere.
“They probably are pondering they should use a bank where they’ll have faith that their deposits are secure, that they will not undergo this again,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
“I do know there are many regional and smaller banks which can be in positive financial health and would like to be the recipient of latest relationships with small businesses,” said Boneparth, who serves on CNBC’s Financial Advisor Council. “But lots of people’s knee-jerk response might be to go to one in all the large names in banking.”
SVB’s collapse occurred after it told investors Wednesday that it needed to lift $2.25 billion to shore up its funds. The news caused the bank’s stock price to plunge, and panic-induced withdrawals quickly followed — a so-called bank run. Regulators shut down the bank on Friday and seized its deposits.
While accounts at banks are generally covered for as much as $250,000 per depositor per ownership category by the Federal Deposit Insurance Corporation, an enormous concern at SVB was the cash above that quantity. The bank generally catered to enterprise capitalists and startups within the local area and elsewhere within the U.S., and as of December, about 95% of deposits on the bank were uninsured.
However, on Sunday, regulators approved a plan to make sure that clients of SVB — which just per week ago was the nation’s Sixteenth-largest bank — will get all their deposits back. The plan also applies to Signature Bank, whose customers also withdrew funds en masse.
For small-business banking clients, the plan should offer some reassurance.
For starters, the message is that when a bank fails, customer deposits might be covered for a limiteless amount, Boneparth said.
“How temporary or everlasting that’s, we’ll discover,” he said. “But for without delay, that is welcome news.”
Additionally, for some small businesses, the FDIC coverage at their bank needs to be sufficient.
“If you are a small business with never greater than $250,000 in deposits, and your bank fails, it won’t be a difficulty, apart from an enormous inconvenience,” Boneparth said.
You also could consider having accounts at different banks, depending on the complexity of your enterprise, said CFP Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
“You can have a primary or foremost relationship for payroll,” said Cheng, who is also on CNBC’s Financial Advisor Council. “You may have a relationship for [enterprise or corporate] treasury management, money reserves or a merchant account.” Merchant accounts accept payments from customers via debit or bank cards.
It’s also necessary to ascertain the financial stability of banks you do business with, said CFP Cathy Curtis, founding father of Curtis Financial Planning in Oakland, California, and likewise a member of the council.
“Look up the bank’s financial statements, rankings and reviews,” Curtis said.
She also recommends in search of banks that provide specialized services for small businesses — for instance, a dedicated business banking team, merchant services or business loans or lines of credit.
Additionally, make sure you ask about fees, rates of interest, monthly charges or balance requirements. It’s also necessary to grasp their online and mobile interface, Curtis said. “Is it sophisticated or clunky?” she said.
Additionally, you’ll be able to ask other business owners who they bank with.
“Find out in the event that they are pleased with the client service and business services provided,” Curtis said.