What should a security business do if its bank fails?

March 14, 2023
Recent collapses of three banks have brought the risk to the forefront in the minds of many business owners and executives

When three major financial institutions collapsed last week, it sent reverberations throughout the financial world. Not only were typical household customers scrambling to access their money, but many small-business owners were left in the lurch, until the FDIC stepped in Sunday to ensure all deposits at the banks would be covered.

Many integrators in the security industry are smaller operations and need access to credit to remain viable to their customers. And the financial crisis that ensued should cause security business owners and executives to ask some pointed questions about how their funds are managed and stored, and what they can do to mitigate risk.

“The easy way to protect yourself is to not have more than $250,000 in one account in the bank (the maximum amount insured by the FDIC); however, that is often not feasible for larger companies that run higher balances,” says Barry Epstein, founder and president of Vertex Capital, a business that represents sellers in the security and life safety industries. “For them, the best way to protect themselves is to bank with the largest U.S. banks. While the amount over $250,000 is not insured, the likelihood of these banks failing is much smaller than with a regional bank. Many of the big banks are seeing a large jump in deposits from businesses because of recent news.”

  • If your bank fails, communicate with your customers and suppliers immediately. Be transparent.
  • Consider sharing your story on social media. It could bring unexpected support from a pro-active lender.
  • If your bank is in trouble, start forming new banking relationships immediately rather than waiting for a regulatory fix.
  • Be proactive: cultivate relationships with investors in your community.
  • Have short-term liquidity solutions in your investment plan, as there may not be much time to react to a bank collapse.
  • If you can avoid it, don't put all your cash in a single bank. 

Communication is Key

On March 10, Silicon Valley Bank became the country’s second-biggest bank failure in U.S. history behind Washington Mutual. Its collapse, in turn, triggered a $10 billion run by depositors of Signature Bank, which focused on financing cryptocurrency firms and had $88.6 billion in deposits. Signature Bank became the third-largest U.S. bank failure on Sunday, March 12.

On March 8, Silvergate Bank, a California lender to cryptocurrency firms, voluntarily liquidated after facing a run on its deposits following the failure of FTX. Many stories emerged early this week from small-business owners who had to deal with the financial fallout.

How One Small Business Dealt with the Fallout

As reported by Fast Company magazine and distributed to SecurityInfoWatch via Tribune Content Agency, in the unlikely event your bank fails, do what Omsom – a small business founded in 2020 – did when Silicon Valley Bank failed: On Friday, the businesses’ co-founders, Vanessa and Kim Pham, found they were unable to access the company’s funds. On Saturday, they wrote an email to customers explaining their company’s situation and encouraging them to purchase items from Omsom and other small businesses like theirs.

Vanessa Pham told the magazine that when the business realized it didn’t have access to its funds, “we had to talk to our partners, suppliers, and investors,” the Fast Company article says. “We have a small team of less than 10 people, so Kim and I were committed to ensuring we could make payroll. That was our No. 1 priority.”

The Phams first spoke with employees and suppliers and kept updating them through the weekend. They posted on Instagram about their troubles with the bank. “We wanted to be vulnerable with our customers and our community,” they told the magazine. “A lot of our suppliers and vendors proactively reached out to us to extend us new terms — like putting us on a 120-day payment schedule instead of a 30-day schedule, no questions asked — after seeing our posts.”

The company’s investors “gave us a lot of good advice” – including coming up with short-term liquidity solutions. “We started talking to investors to see if they might give us short-term loans because we didn’t know how long it would take for us to access our funds, or if we would ever get access to them. We wanted a runway to weather the storm.”

Going forward, Pham said the company has already opened several bank accounts and devised plans for where to store funds “both in terms of banking partners, but also in types of accounts,” she said. 

Tips for Businesses in the Event of a Bank Failure

  • If your bank fails, communicate with your customers and suppliers immediately. Be transparent.
  • Consider sharing your story on social media. It could bring unexpected support from a pro-active lender.
  • If your bank is in trouble, start forming new banking relationships immediately rather than waiting for a regulatory fix.
  • Be proactive: cultivate relationships with investors in your community.
  • Have short-term liquidity solutions in your investment plan, as there may not be much time to react to a bank collapse.
  • If you can avoid it, don't put all your cash in a single bank. 

Being proactive and building an open channel of communication with your banking team can help to ensure your lender knows your business well, a crucial step to helping your business thrive no matter the times. At Eastern Bank, building relationships is at the heart of serving customers and Executive Vice President and Senior Commercial Banking Officer Greg Buscone suggests an important tip for relationship building: “Get to know at least two people at your bank, such as your direct relationship manager who you’ll be working with day-to-day and a Team Leader/Group Head or member of the Bank’s leadership team,” he says.

An article from Tribune Content Agency, LLC was used as part of this article.