Memorial Day is next week. The unofficial start of summer.
I like to remember that when things are unpredictable and even a bit hairy (like a shifty economy, bank failures, debt ceiling crisis), normal life still goes on.
People will still prep their grills. They’ll whip up their mom’s potato salad recipe. Celebrations with friends and family in the backyard will still happen across the 50 states.
It’s always good to keep that in perspective.
As a business owner, you’ve probably gotten good at managing crazy for a while now. Running a business in our post-pandemic economy takes a special kind of chutzpah.
That’s why I want to jump into part 2 of my banking crisis articles. I’ll get back to the second half of our talk about the new FinCEN reporting requirements soon.
But today, my goal is to help ease your mind about the topsy-turvy economy and equip you to navigate it.
Naturally, I won’t cover everything about navigating bank failures in this article. There’s a lot more to be said. If you want to talk about your business goals for this year or how to take this whole bank failure impact in stride, let’s get something on the calendar:
Until, then, I’ve got some thoughts on how you can carry your business forward in this present moment…
How to Navigate Bank Failures
“Banking is very good business if you don’t do anything dumb.” – Warren Buffett
It takes a lot of moving parts to keep a business running, no matter how small or gargantuan it may be. Some of those things your business relies on involve outside institutions. (As much as we like to think we operate in our own bubble… that is rarely the reality.)
Aside from your utility companies, your bank is probably the outside institution that’s most vital to your small business.
Which is why, in the midst of a banking crisis, you might ask, “Is my bank in trouble?”
Accusations keep flying on Capitol Hill as lawmakers grill bank execs. Warren Buffett himself has warned that the banking crisis isn’t over (though he adds that depositors generally shouldn’t worry).
A recent survey showed small-business owners divided between those who have confidence in America’s banking system and those who don’t. Almost a third said they weren’t going to open a new bank account anytime soon. A slight majority think their business capital is secure — but fewer are finding it easy to actually access the capital they need.
Throw in nagging inflation and frequent hikes in interest rates (though both might be slowing this summer)… and the banking crisis can feel like a worry that’ll break the camel’s back.
Allow me to comfort you, if I may: It isn’t.
Navigating bank failures is possible for you and your company… with perspective, caution, and a sharp eye for options.
Navigating Bank Failures Means New Kinds of Risks
When bad asset allocation, sketchy investment, and lax risk management rattle banking — and Congressional inquirers think all of those apply to the current crisis — it’s only natural that other businesses like yours start thinking about new kinds of lenders.
- Shadow banks (which are relatively new sources of lending in the form of investment firms)
- Pension funds
- And others that don’t take deposits (eliminating the risk of a depositors’ run) but rather just lend money — sometimes with stricter terms and with less oversight (so far) than traditional banks.
Approaching one of these institutions means you have to weigh a fresh source of capital against new and unknown risks, a common problem when a mainstream industry as vital and big as banking hits troubled times.
How Much Help Is the FDIC?
But even when navigating bank failures, common sense still prevails. If you are looking for a new bank, you don’t want to jump too quickly only to find yourself at a new institution with hidden higher fees and other problems you didn’t have time to spot.
You should also know that your money also has a backup (within certain conditions). The Federal Deposit Insurance Corporation, created 90 years ago as thousands of banks failed in the Great Depression, insures bank deposits up to 250,000 dollars. The insurance amount is per depositor, per insured bank, for each account category.
Seems simple, and maybe it is for individuals. But is it still giving enough coverage to businesses these days? The FDIC itself has suggested “Targeted Coverage” for different levels of deposit insurance across different types of accounts, with a focus on higher coverage for business payment accounts. The FDIC also noted how individuals can often do what businesses can’t: Diffuse their accounts and their money across multiple banks to make sure every account is under the threshold of FDIC coverage.
For now, until some sort of Targeted Coverage becomes a reality, it could be a smart move to try doing this as much as possible with your business accounts.
Does Business Size Matter?
In one of those surveys we mentioned, small-business owners are fairly split in preferring to work with large, regional, and community banks, but they did report that right now the regionals and community banks were harder to access capital from. That’s also the order in which respondents expressed confidence in their bank now — “bigger” does seem more secure.
But is it? Unrealized losses are on the books of many regional, mid-sized banks — yet some benefited from the business transferred from the likes of Silicon Valley. Small businesses also still get more loans approved by small banks than by big ones.
Navigating Bank Failures Involves Getting Creative
If you don’t want to go through a bank at all for capital, think about the U.S. Small Business Administration, online lenders (where terms are usually easier but the interest rates and fees are higher), or a credit union.
Credit unions also offer traditional banking services and come in sizes ranging from small and local cooperatives to large institutions with a nationwide presence and thousands of participants. Compare credit unions using the same factors you’d use when shopping for a bank: fees, customer service, branch locations, online access, and so on. They’re also not-for-profits, so your fees might be lower, which is a nice little cherry on top.
Finally, there’s the more cutting-edge option: Online banks today can go wherever your company does and offer many of the same services to manage your business finances — though not always the ability to deposit cash, and so are best for totally e-payment companies. Fees are generally lower than with brick-and-mortar other banks.
Clearly, you’ve got options as this banking crisis works itself out, which is a good feeling to have. We’re here for you and your business through this time, just like any other, so let us know if you have any business financial concerns we may be able to speak into.
On your behalf,