Questions My Business Owner Clients Ask Me: Should I be Worried About My Bank?

Do I need to worry about my bank?  What about my customers’ banks?  What should I do to be prepared?

I’ve been talking with my clients about the banking industry and its stability.  Here are some ways that you can protect yourself and your business from any unfavorable fallout…

While the failure of SVB and several other banks (that were players in crypto-currency) seemed to be a surprise to everyone, it should not have been. These banks were obviously not reacting to the impact that rising interest rates, and falling crypto values, had on their capital and regulatory compliance requirements. By the time they did, it was too late to make the necessary adjustments.

All banks have risk management teams that focus on strategies to mitigate the impact of economic events on their capital structure and to make timely decisions to protect their banks’ balance sheets. Has your bank been paying attention to these changes?

Here are 5 steps to take to protect your money:

  1. Talk with your banker.  Get answers about their risk management policies and what they see happening over the next few quarters. Then you can decide if you’re comfortable with their strategies. If they can’t answer your questions, think about changing banks (or bankers).
  2. Stay liquid.  This is good advice always during uncertain times (and it seems we are continually living in “uncertain times”). Put funds in several banks with Fed insurance rates up to $250,000. If you have considerably more cash than the insured amount, ask your banker to put your funds into a product that protects them (by creating a pool of multiple banks each holding only $250,000 per client). Not only will your funds be protected, but your bank manages the pooling process with an insured provider so you don’t have to.
  3. Make sure you can draw on your Line of Credit if you need to. In the last financial crisis, banks lowered customers’ credit line approvals. While I don’t see this as an issue, it is good business practice – especially if you don’t actively use your line.
  4. Update your cash flow forecasts.  How much cash will you need over the next few weeks or months? Are your customers’ banks stable? You can find out who your customers bank with but looking at their last check or ACH payment. Is this bank in the news? If so, you might expect a slower payment, hence stay liquid and have your LOC available.
  5. Communicate to all stakeholders!  Employees, vendors, customers, Let them know you’ve spoken with your banker and she says the bank’s capital is well within regulated thresholds. Maybe your bank has even sent out a communication to you already. Tell employees that their paychecks will be on time!  Talk with vendors about stretching terms if your forecasting shows a tight cash position. Talk with your customers about their liquidity and do they expect to make timely payments. If not, reconsider your cash flow forecast and your cash position. Rinse and repeat as necessary,

There is quite a bit of chatter about reducing the number of banks, particularly regional and community banks.  I’m not in favor of this at all!  The larger banks are “too big to fail” but not great partners for growing small businesses. The smaller banks have bankers who are valuable assets to business owners — who take the time to learn their clients’ businesses and who have the expertise to help entrepreneurs make credit-worthy financial decisions.

What do you think?

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