Small Businesses Stress Test Their Banks After Silicon Valley Bank’s Collapse

Responding to the recent banking-industry turmoil is particularly challenging for small businesses, which typically don’t have large finance teams or sophisticated cash-management strategies. Small-business owners with conservative habits often keep lots of cash on hand as a cushion. Loan restrictions can make it tough to split that cash among multiple institutions. 

“I think we need to analyze banks just like they analyze us,” said

Brent Frederick,

owner of Minneapolis-based Jester Concepts, which has five restaurants including Butcher & the Boar and a concession operation that includes food trucks, a food trailer and stadium locations. “What is the bank’s core value? What do their balance sheets look like?”

Mr. Frederick, who has more than 300 employees, has long kept millions of dollars in deposits at one large, national bank. Now he is considering shifting funds to a handful of smaller banks that have provided the restaurant group with loans. 

“It seems like the bigger banks are having the bigger problems,” he said. “The smaller banks, the local banks, provide that small-business support.”

Many small-business owners are doing nothing for now, but the actions of others provide an early sign of how the banking industry’s troubles are rippling through the economy and leading some entrepreneurs to scrutinize relationships and habits they took for granted. 

“There is a very broad ripple effect,” said Jennifer Pearce, a managing principal with Boulder, Colo.-based AVL Growth Partners, a provider of chief financial officer and accounting services to small and midsize companies. “It’s not just where did you bank? It’s where did my customers bank? Where are my vendor providers banking?” 

Those questions have been most common among companies whose business partners had some connection to Silicon Valley Bank, she said.

Gabe Abshire,

founder and chief executive of Utility Concierge in Dallas, is in discussions with potential equity investors for his 150-person company, which helps customers set up home services and utilities when they move.

Mr. Abshire received a call last week from a banker representing one potential investor, assuring him that the bank’s financing was sound. He now plans to learn more about where other potential investors keep their funds, how they are financed, where they bank and how they are securing their funds. 

Treasury Secretary

Janet Yellen

and President Biden in recent days have sought to calm jittery consumers and businesses and reassure them that the U.S. banking system is sound. Larger lenders, including those who brought capital to First Republic Bank, also sought to ease fears from depositors about banking with regional, midsize and smaller institutions. 

Ami Kassar, CEO of business-loan adviser MultiFunding, said he worries that if customers decide to move funds from smaller banks to larger ones, that outflow could ultimately hurt small businesses by leaving them with fewer lending options.

Banks had begun tightening their lending standards toward the end of last year as rising interest rates increased the amount of cash flow needed to cover loan payments, said

James Arnold,

CEO of American Bank of Commerce in Lubbock, Texas.

“We were seeing tightening before we had this Silicon Valley issue,” said Mr. Arnold, whose community bank has $1.5 billion in assets. “It may be a little too early to tell if this is going to exacerbate it,” he said. Like many bankers, Mr. Arnold has been fielding questions from customers and reaching out to reassure them.

Griffin Dooling,

chief executive of Blue Horizon Energy in Minnetonka, Minn., is considering moving one or two months of cash into a second bank or securing a credit line with another lender that the developer of commercial and industrial solar projects could draw on in an emergency. 

“We are having conversations about treasury management that we’ve never had before,” said Mr. Dooling, whose bank called offering reassurances last week.

Many small-business owners wish they had enough cash to worry about exceeding the Federal Deposit Insurance Corp.’s $250,000 limit on deposit insurance. But it is easy for even a modest-size business with conservative habits to exceed that limit, said Ryan Hurst, a partner with RKL LLP, an accounting firm in Lancaster, Pa.  

“Call it the rainy-day fund,” Mr. Hurst said. “They feel more comfortable having more cash at their disposal.” Most of RKL’s small-business clients don’t appear rattled by the recent bank failures, he said.

Unlike large corporations, most smaller companies don’t have sophisticated treasury management operations, making responding to recent events more challenging.

“I’m not set up to evaluate the balance sheet of a bank,” said

Alan Pentz,

chief executive of Corner Alliance Inc., a federal contractor based in Washington, D.C., with 70 employees. “Treasury management is handled by the same person who does payroll, projections and 50 other things.” Corner Alliance’s bank called last week offering reassurances, he said. 

Loan covenants can present another challenge for companies rethinking cash management.

Peter Elitzer,

CEO of Huck Finn Clothes Inc., which has about 600 employees, said his loan agreements have typically required his company to keep all of its deposits with the lender or, at the least, an amount exceeding the FDIC’s $250,000 standard deposit-insurance coverage limit. 

Huck Finn, based in Latham, N.Y., has 60 different bank accounts in proximity to its 71 Label Shopper and Peter Harris stores, which are located in small and midsize cities. The bank holding the retailer’s main line of credit sweeps those accounts twice a week and transfers the money into an account at the larger bank. A second lender that holds the company’s real-estate loans has its own deposit requirements. 

Mr. Elitzer said he is asking his lenders to relax the deposit requirements. “I’ve begun the conversation and am not getting a great reception,” he said. “They are saying we are so stable. Everyone always is until they are not.”

Write to Ruth Simon at [email protected]

Responding to the recent banking-industry turmoil is particularly challenging for small businesses, which typically don’t have large finance teams or sophisticated cash-management strategies. Small-business owners with conservative habits often keep lots of cash on hand as a cushion. Loan restrictions can make it tough to split that cash among multiple institutions. 

“I think we need to analyze banks just like they analyze us,” said

Brent Frederick,

owner of Minneapolis-based Jester Concepts, which has five restaurants including Butcher & the Boar and a concession operation that includes food trucks, a food trailer and stadium locations. “What is the bank’s core value? What do their balance sheets look like?”

Mr. Frederick, who has more than 300 employees, has long kept millions of dollars in deposits at one large, national bank. Now he is considering shifting funds to a handful of smaller banks that have provided the restaurant group with loans. 

“It seems like the bigger banks are having the bigger problems,” he said. “The smaller banks, the local banks, provide that small-business support.”

Many small-business owners are doing nothing for now, but the actions of others provide an early sign of how the banking industry’s troubles are rippling through the economy and leading some entrepreneurs to scrutinize relationships and habits they took for granted. 

“There is a very broad ripple effect,” said Jennifer Pearce, a managing principal with Boulder, Colo.-based AVL Growth Partners, a provider of chief financial officer and accounting services to small and midsize companies. “It’s not just where did you bank? It’s where did my customers bank? Where are my vendor providers banking?” 

Those questions have been most common among companies whose business partners had some connection to Silicon Valley Bank, she said.

Gabe Abshire,

founder and chief executive of Utility Concierge in Dallas, is in discussions with potential equity investors for his 150-person company, which helps customers set up home services and utilities when they move.

Mr. Abshire received a call last week from a banker representing one potential investor, assuring him that the bank’s financing was sound. He now plans to learn more about where other potential investors keep their funds, how they are financed, where they bank and how they are securing their funds. 

Treasury Secretary

Janet Yellen

and President Biden in recent days have sought to calm jittery consumers and businesses and reassure them that the U.S. banking system is sound. Larger lenders, including those who brought capital to First Republic Bank, also sought to ease fears from depositors about banking with regional, midsize and smaller institutions. 

Ami Kassar, CEO of business-loan adviser MultiFunding, said he worries that if customers decide to move funds from smaller banks to larger ones, that outflow could ultimately hurt small businesses by leaving them with fewer lending options.

Banks had begun tightening their lending standards toward the end of last year as rising interest rates increased the amount of cash flow needed to cover loan payments, said

James Arnold,

CEO of American Bank of Commerce in Lubbock, Texas.

“We were seeing tightening before we had this Silicon Valley issue,” said Mr. Arnold, whose community bank has $1.5 billion in assets. “It may be a little too early to tell if this is going to exacerbate it,” he said. Like many bankers, Mr. Arnold has been fielding questions from customers and reaching out to reassure them.

Griffin Dooling,

chief executive of Blue Horizon Energy in Minnetonka, Minn., is considering moving one or two months of cash into a second bank or securing a credit line with another lender that the developer of commercial and industrial solar projects could draw on in an emergency. 

“We are having conversations about treasury management that we’ve never had before,” said Mr. Dooling, whose bank called offering reassurances last week.

Many small-business owners wish they had enough cash to worry about exceeding the Federal Deposit Insurance Corp.’s $250,000 limit on deposit insurance. But it is easy for even a modest-size business with conservative habits to exceed that limit, said Ryan Hurst, a partner with RKL LLP, an accounting firm in Lancaster, Pa.  

“Call it the rainy-day fund,” Mr. Hurst said. “They feel more comfortable having more cash at their disposal.” Most of RKL’s small-business clients don’t appear rattled by the recent bank failures, he said.

Unlike large corporations, most smaller companies don’t have sophisticated treasury management operations, making responding to recent events more challenging.

“I’m not set up to evaluate the balance sheet of a bank,” said

Alan Pentz,

chief executive of Corner Alliance Inc., a federal contractor based in Washington, D.C., with 70 employees. “Treasury management is handled by the same person who does payroll, projections and 50 other things.” Corner Alliance’s bank called last week offering reassurances, he said. 

Loan covenants can present another challenge for companies rethinking cash management.

Peter Elitzer,

CEO of Huck Finn Clothes Inc., which has about 600 employees, said his loan agreements have typically required his company to keep all of its deposits with the lender or, at the least, an amount exceeding the FDIC’s $250,000 standard deposit-insurance coverage limit. 

Huck Finn, based in Latham, N.Y., has 60 different bank accounts in proximity to its 71 Label Shopper and Peter Harris stores, which are located in small and midsize cities. The bank holding the retailer’s main line of credit sweeps those accounts twice a week and transfers the money into an account at the larger bank. A second lender that holds the company’s real-estate loans has its own deposit requirements. 

Mr. Elitzer said he is asking his lenders to relax the deposit requirements. “I’ve begun the conversation and am not getting a great reception,” he said. “They are saying we are so stable. Everyone always is until they are not.”

Write to Ruth Simon at [email protected]