Following the collapse of Silicon Valley Bank and Signature Bank in March, financial advisors recommend that small business owners reexamine their bank accounts in order to protect their finances. Small business owners must perform their own risk assessment, should their current bank fail.
The Federal Deposit Insurance Corporation insures deposits up to $250,000, and most small business owners have less than that in their accounts. According to a JPMorgan Chase Institute survey of 600,000 of its small business account holders, the median cash balance was $12,100. However, businesses that have employees have higher payroll costs and, thus, higher risk.
A paper published in March 2023 assesses the likelihood of further banks crumbling. Experts advise diversifying one’s holdings in order to have more coverage in the event of a bank collapse. They also point out that holding an account in a separate bank enables the small business owner to wire funds, if one bank seems to suddenly be on the brink of collapse.
Another option is for banks to use the IntraFi Network, which splits a customer’s deposit into smaller amounts of less than $250,000. These smaller lumps are sent to other banks in the system, which grants customers various F.D.I.C-insured accounts.
Ultimately, financial experts and banks advise asking where service providers bank to ensure that there are backups in place.
