Advice for small businesses when choosing a bank

Employees stand in front of the closed Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

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For small businesses that have been storing their cash at Silicon Valley Bank – which collapsed last week – the good news is that they are getting better. The same applies to customers of Signature Bank, which was closed by regulators on Sunday.

But they must now find another place to store their money — and they and other small businesses may face a similar disaster elsewhere.

“They probably think they need to go to a bank that they can trust that their deposits are safe and that they won’t have to go through anything like this again,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

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“I know there are many regional and smaller banks that are in good financial shape and would like to forge new relationships with small businesses,” said Boneparth, who serves on CNBC’s Financial Advisor Council. “But a lot of people will reflexively go to one of the big names in banking.”

The trigger was a “bank run” on the SVB

SVB’s collapse came after it told investors on Wednesday that it needed to raise $2.25 billion to shore up its finances. The news caused the bank’s share price to plummet, and panic-driven withdrawals quickly followed – a so-called bank run. Regulators closed the bank on Friday and confiscated its deposits.

While bank accounts usually are covered for up to $250,000 per depositor per property category from the Federal Deposit Insurance Company, the money was also a major concern for the SVB. The bank generally targeted venture capitalists and start-ups in the region and elsewhere in the US, and as of December about 95% of deposits at the bank were uninsured.

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On Sunday, however, regulators approved a plan to ensure customers of SVB – which was the country’s 16th largest bank just a week ago – get all their deposits back. The plan also applies to Signature Bank, whose customers have also withdrawn en masse.

For small business bank customers, the plan should offer some security.

For starters, the message is that if a bank fails, there is no limit to customer deposits covered, Boneparth said.

“How temporary or permanent that is, we’ll find out,” he said. “But for now, that’s welcome news.”

For some companies, FDIC coverage may be sufficient

Consider multiple banks, check financial stability

You might also consider having accounts at different banks depending on the complexity of your business, said CFP Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

“You can have a primary or principal relationship for payroll,” said Cheng, who is also a member of CNBC’s Financial Advisor Council. “You can also have a relationship for treasury or cash reserves or a merchant account.” Merchant accounts accept payments from customers by debit or credit card.

It’s also important to review the financial health of the banks you do business with, said CFP Cathy Curtis, founder of Curtis Financial Planning in Oakland, Calif., and also a member of the council.

“Look at the bank’s financial statements, ratings and reviews,” Curtis said.

She also recommends looking for banks that offer specialized small business services — for example, a dedicated commercial banking team, merchant services, or business loans or lines of credit.

Also, be sure to ask about fees, interest rates, monthly fees, or balance requirements. It’s also important to understand their online and mobile interfaces, Curtis said. “Is it sophisticated or clunky?” She said.

In addition, you can ask other business owners who they are banking with.

“Find out if they are satisfied with the customer service and business services provided,” Curtis said. Advice for small businesses when choosing a bank

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