How to Protect Your Small Business With Lessons From the SVB Bank Failure

Posted By Madilyn Moeller, Thursday, March 23, 2023

Empty pockets

By Maven Financial Partners

What a week it was in the banking world. The second-largest bank failure in American history—yikes.

Here’s the skinny: Silicon Valley Bank (SVB) lost a lot of money, causing its customers to get scared and try to withdraw their money, causing a run on the bank. That’s when the Federal Deposit Insurance Corporation (FDIC) stepped in and closed the bank. This all seems fine, because the FDIC will pay them back, right?

Well, there is a bit more to it. Most customers at this bank had more than the FDIC-insured amount of $250,000. SVB had very little funding from traditional customer “core deposits”—it was mostly funding related to cryptocurrency startups and tech-related companies, which are very high-risk funding methods on its part. The uncertainty about what would happen to customers with more than $250,000 in deposits started to spread to other banks, which began a domino effect of banks hitting red.

SVB’s balance of both high-risk and traditional funding methods were not in equilibrium with one another. It is important that banks have this equilibrium of high-risk and traditional funding in order to survive in this economy of rising interest rates.

What can you do to protect yourself and your small business?

One of, if not the most important lesson from this bank failure is to ensure that you are mindful of the FDIC insurance coverage and your balances within the insured thresholds. In other words, if you currently have more than $250,000 in any of your bank accounts, consider moving the excess over $250,000 to another account in order to maintain FDIC coverage. Simply spreading your money around is a relatively low-effort way of protecting your assets. While maintaining multiple bank accounts may require a bit more money management on your end, it will help protect the amount you carry in the event of a bank closure. For more information about this best utilizing this method, check out this FDIC resource.

Additionally, according to Rebeca Romero Rainey, CEO of the Independent Community Bankers of America, it is important to “understand that not all banks are created equal. In stark contrast to the nation’s largest banks, community banks operate under an entirely different business model—one that’s based locally and is relationship focused. As small businesses themselves, local community banks take pride in serving the unique needs of their customers and communities. In short, they are in it for the long haul to serve the needs of those who count on them for financial stability and prosperity.”

Finally, be sure you are not reacting to public fear, be strategic about where you put your money and continue staying up to date with reputable sources such as the Federal Reserve government website.

Maven Financial Partners acts as an aesthetics CFO. It helps aesthetics businesses understand their financials and make a plan for their business. Maven budgets income and expenses, sets provider goals, measures performance and forecasts growth. It wants to connect with business owners who want to become more profitable.

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