It’s been a rough year for banks, particularly regional and smaller banks. While we continue to coach our clients that these types of banks are preferred because of the personal relationships they foster, now is an important time to revisit those relationships and ask some tough questions.

Note we said, “banks” (plural). We firmly believe business owners need to have a working relationship with more than one bank. The main purpose of doing business with more than one bank is to keep your primary bank honest and aware in quoting rates for additional financing needs such as funding capital improvements, funding real estate or staying competitive with the rate on your Line of Credit. 

Of course, if your primary bank failed, you would obviously need a backup for critical functions like payroll. But beyond bank failures, other catastrophic events can happen to the bank, like a fire, cybersecurity breach, flood, or power outage.

Ask Your Banker Some Tough Questions

Set up an in-person meeting at the bank or a lunch with your banker and ask questions like:

• How healthy are the bank’s financials? How do their numbers compare to a year ago, five years ago, or even ten years ago?
• What do they think the bank’s financials will look like in 6 months or 12 months?
• What is the biggest loan loss they have incurred in the last 12 months?
• What loans are they worried most about?
• How exposed are they in sectors that are suffering right now, like commercial real estate (particularly office building landlords)?
• How is the bank’s investment portfolio? Is it balanced and conservative or aggressive in riskier sectors like technology?
• How do they think their bank’s financial stability compares with their competitors?



Take the time to dig in and get a sense of their level of worry (or confidence). If you are not satisfied with the answers or think they might not be telling you the whole truth, it’s time to look for a new bank.

Common (and Uncommon) Disruptions

The failures of these larger banks magnify the issues above, but the fact is that any disruptions can negatively affect a small business. The FDIC (Federal Deposit Insurance Corporation) will insure up to $250,000 for chartered banks. Still, even a minor stumble on the bank’s part can become a significant disruption for a business. 

Other disruptions beyond bank failures include environmental disasters, pandemics (ex. COVID-19), cybersecurity issues, and more. There may not be a foolproof way to avoid bank troubles, but there are steps small business owners can take to protect themselves financially.

We recommend that small business owners have accounts with at least two different banks – if there is a disruption at one bank, you can still rely on the other bank to provide finances for immediate needs, such as payroll. 

Small business owners should be like the golfer who carries two putters (or two drivers, if you’re Phil Mickelson circa 2006) in case one doesn’t work how they expect it to. Don’t put all your eggs in one basket – consider multiple baskets, even completely different containers. 

Learning From Recent Bank Failures

Several large U.S. banks have faced huge issues this year. Silvergate Bank liquidated in early March 2023 after a series of miscues, most notably the run on the bank after cryptocurrency hedge fund FTX announced bankruptcy. 

Silicon Valley Bank (SVB) was the 16th largest bank in the U.S., working with many organizations in the tech industry. However, in response to the Federal Reserve’s continual raising of interest rates since 2021, SVB announced in March 2023 that it had sold securities and treasury stocks and borrowed an additional $15 billion. This announcement caused a run on the bank as its customers withdrew $42 billion. Signature Bank and First Republic Bank have also faced similar financial issues. 

These bank failures have caused waves across U.S. and international markets. The current federal response has been to create the Bank Term Funding Program, which gives one-year emergency loans to credit unions, banks, savings associations, etc. 

Inflation, supply chain disruptions, and market volatility are happening nationwide. For small businesses, it is critical to ensure that all financial choices are informed and stable. If they have a loan with a bank that fails, this can impact loan terms, interest rates, and more. 

As Your Small Business Grows

Whether your small business is relatively new or you’ve been around for a while, there are crucial actions to take as your business grows.

• Establish a Line of Credit (LOC) with your banks. Do this even if you don’t anticipate needing it; you want to avoid trying and getting a LOC when you need it if your financials take a downturn. Additionally, ensure you use your LOC occasionally to demonstrate to the bank that it’s active.

• Build up your cash reserves. Work to set monthly targets for savings, monitor cash flow daily, and eliminate unnecessary spending. These are vital to have ready to go in times of disruption. 

• Know your alternative funding options. If a disturbance is beyond your control and your small business needs significant help quickly, remember that you could utilize crowdfunding or angel investors. 

• Diversify your customer base. Consider bringing your business to new markets or targeting different segments. Smart business owners know that multiple, diverse customer bases are key.