Re-Evaluating Business Banking

As a business owner, I understand the importance of finding and partnering with the right bank and establishing a strong banking relationship … one where your bank knows YOU and not just your account number.

While some of the big banks might offer your business a dedicated account team and relationship manager, the relationships aren’t always personalized. You’ll often feel more like just another account. If you need bank services or help, the account team and relationship manager will often read off the script. To find those personalized relationships, you’ll often need to go with small to mid-size banks though, it’s not guaranteed.

Of course, that brings up the question … is it safe to partner with small to mid-size banks?

Considering recent events in the banking industry, many business owners are likely asking the same question.

It’s terrifying to think your bank has been shut down and your business funds may be in limbo. What if my business bank account is over the FDIC limit? Will I be able to recover those monies? When will I have access to my business funds? Will I be able to receive payments from clients and make deposits? Will my outstanding checks clear? Will I be able to make payroll and pay my vendors? All valid questions and concerns!

Fortunately, with the current situation, state and federal regulators, the Treasury Department & Federal Deposit Insurance Corporation (FDIC) along with other governmental entities stepped in and are working to stabilize the situation and make depositors whole (even those with depositor accounts over the FDIC limit). But that applies to the current situation and there’s no guarantee this will apply to any future situations (though we hope steps will be taken to mitigate and prevent any future reoccurrence).

It's also important to note that big banks aren’t immune to failing. Sure, they undergo stringent stress tests and face greater scrutiny (especially after the 2008 Financial Crisis) but given a perfect storm of events left unchecked could potentially result in a domino effect leading to a bank failure. Again, the hope is lessons are learned from past and recent events resulting in proactive and ongoing steps to mitigate and prevent a repeat of history.

That brings us back to the original question of whether it’s safe to partner with small to mid-size banks?

Generally speaking, if you partner with reputable small to mid-size banks, your business funds should be just as safe as if you partner with the large banks and you might get some other benefits including reduced banking fees and that personalized banking relationship we’ve been talking about.

Is there a risk? There’s always some risk but that risk exists with any bank … small, mid-size, or large … albeit those risks will vary depending on the size of the bank and other variables.

I’ll refer to a quote from Captain James T. Kirk (Star Trek: Generations) … “Risk is part of the game if you want to sit in that chair.”

Business owners take certain risks when they start and run a business. The key is to be smart about it … Plan for the worst … Hope for the best … Take proactive mitigation steps!

If your business has a lot of cash on hand, it may be best to diversify that cash across more than one bank. And yes, I understand this may not be ideal for all businesses as this requires managing multiple banking relationships, multiple bank accounts, and unless you maintain the appropriate balances, could result in additional bank fees.

For small businesses, this is certainly not an ideal situation. If your small business has depositor funds under the $250k FDIC limit, your depositor funds should be fully insured but if a bank is shut down, you may not have access to those funds immediately which creates its own problems. But if you opt to go with a large bank, you may end up paying much more in bank fees.

Unfortunately, there is no one right answer or solution. Each business owner needs to weigh their options as it relates to their business and its operations, assess the pros and cons, and make the best informed decision possible based on the available information.

While we hope to avoid a repeat of history, it’s important for business owners to remain vigilant, plan, prepare, and take the appropriate proactive mitigation steps (to the extent possible) to avoid being caught up in the waves resulting from a similar banking situation.