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How to navigate the banking crisis with confidence for small businesses

Headlines are still buzzing with talk of emergency gatherings, central banks extending credit safety nets, and the collapse of several prominent banks. One of the worst, if not THE worse, collapses in US banking history. Even more so than the fall of Lehman Brothers back in the 2008 crisis.

The overall well-being of the banking industry is vital to our everyday lives for several reasons. Banks are the primary repositories for our hard-earned money, safeguarding the cash reserves that we depend on as individuals and business owners.

As a small business owner, considering the current financial landscape, you're likely reflecting on your financial strategies and seeking ways to weather the probable economic storm these banking failures are signaling.

Are we in a banking crisis?

Silicon Valley Bank (SVB), America's 16th largest bank, collapsed on March 10. SVB had invested extensively in bonds in recent years, using customer deposits per customary banking norms, as interest rates were comparatively low then.

However, the US Federal Reserve raised interest rates to combat rising inflation. As a result, the value of SVB's bond investments fell as the bond investments were based on previously lower interest rates.

Under normal conditions, banks keep their investments for an extended period, only selling them in emergencies. Unfortunately for SVB, a substantial chunk of its customer base was made up of tech startups struggling financially as the tech industry contracted. As a result, these firms used SVB deposits to fund their operations.

As customer withdrawals increased, SVB was forced to liquidate its assets to meet the rising demand. This necessitated selling the bonds at a loss, and the accumulating losses eventually rendered SVB insolvent.

Ultimately, SVB fell victim to one of the most enduring challenges in banking history: a bank run, which no financial institution can withstand. Federal regulators were called in to intervene, seizing SVB's assets to safeguard the remaining deposits.

Following Silicon Valley Bank's failure, depositors withdrew sizable sums of money, forcing Signature Bank to close its doors on March 12, 2023. These banking failures have caused damage on a scale unseen since the initial COVID-19 market crash in 2020. While most Americans anticipate what will happen next, many are starting to worry about the security of their possessions.

What does the banking crisis mean for small businesses?

As an entrepreneur, you must understand the implications of the current financial landscape and how it may affect your business. The following analysis will delve into the challenges that can arise in the face of a financial crisis and its potential impact on your business operations:

  • Credit Constraints: The prevailing conservative approach of financial institutions has resulted in stringent lending criteria and reduced loan disbursements. Consequently, acquiring essential capital for business expansion or maintaining operations may become increasingly difficult.

  • Cautious Consumer Spending: The prevailing economic uncertainty has rendered consumers more frugal, leading to diminished sales and revenue for small businesses. As a result, covering operational expenses and sustaining profitability may prove to be an arduous task.

  • Escalating Interest Rates and Additional Fees: To mitigate risk, banks have increased loan interest rates, raising the cost of borrowing for businesses. Furthermore, introducing new or augmented fees may add to your financial burden.

  • Bank Closures and Financial Disruptions: In extreme cases, the crisis could result in the closure or failure of banking institutions. Such disruptions may directly impact the financial services your business depends on, such as credit and payment processing, subsequently complicating daily operations.

While facing these challenges can seem daunting, having a comprehensive understanding of the potential effects of a financial crisis on your small business is invaluable. Understanding the consequences of a banking crisis can help you proactively address these issues, resulting in a more substantial, more resilient business.

Strategies for safeguarding your business in a banking crisis

In the face of a banking collapse and global inflation, small businesses can take proactive steps to safeguard themselves. Below it's a rundown of strategies to help your business stay resilient during these challenging times:

1. Maintaining good credit and financial records

A solid economic foundation is essential for weathering financial storms. Keep your credit score in good shape and maintain accurate, up-to-date records. This makes your business more attractive to funders and helps you make informed decisions based on your company's short- and long-term health.

On the other hand, if you have bad personal credit, you must understand the difference between business credit and personal credit. This will help you know ways you can start building your business credit.

2. Diversifying sources of revenue

In times of uncertainty, innovation becomes increasingly valuable. Assess your current customer base to identify opportunities for increased monetization.

Explore potential new revenue sources to help de-risk your business and consider investing strategically in these areas. Challenging times present growth opportunities; seize them by seeking innovative solutions and expanding your business horizons.

3. Diversifying sources of financing

Don't rely solely on traditional banks for financing. Explore alternative funding options like short-term loans, lines of credit, merchant cash advances, or invoice financing. Diversifying your sources helps ensure you have access to capital even during disruptions in traditional banking channels.

4. Staying informed and seeking professional advice

Keep abreast of economic news, industry trends, and government initiatives that may impact your business. This knowledge allows you to anticipate challenges and make strategic adjustments as needed.

Additionally, consider seeking professional advice from financial advisors, accountants, or legal experts to help you navigate complex situations and make well-informed decisions.

By implementing these strategies, your small business can better safeguard itself against the effects of a banking collapse and global inflation, ultimately enhancing its resilience and long-term success.

A group of business owners preparing their business for a banking crisis

Every cloud has a silver lining.

The whirlwind of banking crises and global inflation can pack a severe punch on small businesses.

From credit crunches to frugal consumers and pesky fees, these challenges can feel like a steep mountain to climb. But don't be disheartened. You can turn these hurdles into stepping stones to success with a clear understanding of the impacts and a proactive game plan.

The banking crisis has intensified small businesses' challenges securing working capital from conventional banks.

That's where we come in. Since 2010, One Park Financial has helped small business owners obtain the funding they need to thrive and survive all kinds of financial storms.

If your monthly revenue is up to $7,500, and your business has been active for over 90 days. Our online form is just a few clicks away, and speaking with one of our funding experts could be your best decision today! Let us help take your business to the next level with tailored funding solutions that suit your needs. Please fill out the form now, and let's get started!

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.

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