Banking crisis aftermath: Should small business owners be concerned?

We watched the collapse of Silicon Valley Bank and Signature Bank impact small businesses, but we want to know what’s next.. and should business owners still be concerned? On today’s Small Business Show, we’re pleased to welcome Sarah Foster, U.S. Economy Reporter for Bankrate.

In today’s economy, small businesses are in a unique category. Foster notes that “however, some still need access to funds greater than $250,000, which is the Federal Deposit Insurance Corporation, FDIC, insurance limit.” Under FDIC regulations, all deposits are owned by corporations, partnerships, or unincorporated entities- including for-profit, or not-for-profit organizations.

She adds, “By taking into perspective, a business that employs 20 people with the average median household income and you’re going to have at least a fifth of that limit to fund biweekly payroll.” 

After the collapse, the Federal Reserve moved extremely swiftly to contain the bank fallout and there’s pressure to possibly increase the FDIC limit cap. Although a raised cap is not guaranteed, it has regulated a primary area of concern. According to Foster, “To ensure excess deposits, you want to open multiple accounts at your current bank.”

The FDIC limit insures are per account and per account holder. So, if you open five other accounts at the same bank, or even added multiple people on one account, per person would be insured up to $250,000. 

Ultimately, it comes down to doing the research of what’s available to you. 

“For someone who is looking to limit how much they’re spending on debt payments each month, credit cards aren’t the best place to turn to.” — Sarah Foster

Future Headwinds

Folster asserts, “I think the biggest concern around the bank collapses is gearing towards lending: lending out less, tightening credit standards, and having enough cash on hand.” The unfortunate answer is, it’s going to take a while. As a business owner, that is the most important thing to really pay attention to. “Like how many more rate hikes are the feds going to push and how many will play out in the current economy,” Foster adds. The recent bank failures have illustrated how a lot of economists claim it takes one year to feel the effects of one interest increase to file through the economy. “We currently faced nine interest hikes in the most rapid runup in 40 years.”