How Small Businesses Can Find Safety Before the Next Bank Crisis

The service is free but relevant only to businesses with uninsured deposits. For Cape Cod 5, that means fewer than 1,000 of its more than 100,000 customers. Mr. Burke has been reaching out to those customers to set up sweep accounts. Some have declined, saying they are comfortable with the bank’s track record.

But others, like the accounting firm Glivinski Associates, are using the service. Because Glivinski handles financial matters for its clients, it needs to have access to cash, and the sweep accounts allow it to have operating capital and keep it insured.

Glivinski has also been sending its clients to Mr. Burke to set up sweep accounts. “Almost 80 percent of our clients are nonprofits,” said Valerie Silva, Glivinski’s chief operating officer. “Even they have more than the F.D.I.C. limits in the bank because their budgets are in the millions.”

Should I worry about my service providers?

The collapse of Silicon Valley Bank caused unexpected fallout for small businesses because several payroll processing firms banked there and their funds were temporarily held while federal regulators sorted through the mess. In the meantime, those firms could not cut paychecks for their clients’ employees.

One of the lessons Ms. Wirt, the owner of Latched Mama, learned was: Ask where your service providers bank. She was pleased to learn that Gusto, her payroll firm, had backups in place. If it got caught in a bank collapse, Gusto said, it could easily handle Ms. Wirt’s payroll from another account.

“We say it’s good to have a redundant payroll process system,” said Mike Taylor, Gusto’s chief financial officer.

Article source: https://www.nytimes.com/2023/04/01/business/small-business/small-business-banking-tips.html