The collapse of two regional lenders, Silicon Valley Bank and Signature Bank, last month caused a ripple of panic among small businesses across the country as owners watched the news unfold and wondered whether their assets were safe — even if their deposits were not in one of the failed institutions.
Now that the panic has begun to subside, advisers are recommending that small businesses examine their accounts to determine their level of risk and protect their deposits from a future bank failure.
When Melissa Wirt started Latched Mama, an e-commerce company that sells apparel for nursing mothers, she did it with a loan from her personal savings — as most small-business owners do. She chose to set up a business account at Atlantic Union Bank because her personal accounts were there, which made it easy to transfer funds if her business needed a cash infusion.
Plus, she liked her personal relationship with Atlantic Union Bank. “They watched my business grow and my family grow,” Ms. Wirt said. “We went through the collective trauma of Covid together, and I learned that banks can care about their customers.”
She rarely carries more than $250,000 in the bank, but during the recent banking turmoil, she worried that if Atlantic Union also failed, she might not be able to make her $60,000 biweekly payroll for her nearly 40 employees. So she opened a second business account at a larger bank.
How many small businesses are at risk?
Experts say most small businesses face little risk in a bank failure. The Federal Deposit Insurance Corporation insures deposits of up to $250,000, and most small businesses probably keep far less money than that in the bank. The JPMorgan Chase Institute surveyed 600,000 of its small-business account holders and found that they held a median cash balance of just $12,100.
Two things can change that risk assessment: having employees or being funded by venture capital.
Payroll costs are one of the biggest expenses for most companies. Gusto, a payroll and benefits provider for more than 300,000 small businesses, said nearly half its clients with 50 to 99 employees had monthly payrolls above $250,000. That figure jumps to 95 percent for firms with more than 250 employees.
