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Silicon Valley Bank, Signature Bank, and Silvergate: A guide for SMEs impacted by the U.S. bank failures

The recent collapse of Silicon Valley Bank (SVB) has sent shockwaves throughout the global business community, impacting entrepreneurs and early-stage startups worldwide. 

The impact of SVB’s collapse is felt not only by startups in Silicon Valley but also by businesses worldwide.  SVB has long been regarded as the banker of choice for startups, including Aussie entrepreneurs. Many startups’ SVB accounts hold crucial investments they raised during their early stages. 

A petition filed by Y Combinator has highlighted the potential impact of Silicon Valley Bank’s collapse on small businesses. (Link to the petition here.) 

The petition stated that around 10,000 small businesses that hold accounts with SVB might need help paying their employees within the next 30 days. The collapse may also impact around 100,000 jobs worldwide. 

What happened?

SVB Financial Group made headlines last week when it announced its plan to raise $2.25 billion through a share sale, in addition to the sale of securities worth $21 billion from its portfolio. However, the bank also revealed a $1.8 billion after-tax loss on the sale of these investments, raising concerns about its solvency. This caused a stock crash and prompted customers to withdraw their deposits. (More on their investor relations page)

Rising interest rates led to higher interest payments to depositors and lower interest earnings from depositors, which may have been attributed to the ongoing crisis. This put significant pressure on the bank’s financial position. The bank’s ownership of government securities, which were considered super safe, took a hit due to the rising interest rates. As a result, the value of these securities dropped, causing the bank to suffer significant losses.

The bank had to sell off these securities to raise cash, but their reduced value led to a shortfall. The bank then proposed raising an additional $2 billion in the capital, which further sparked a run on the bank.

According to the National Venture Capital Association, over 37,000 small businesses with more than $250,000 in deposits had accounts with Silicon Valley Bank. With the balances now unavailable, these businesses may face difficulty accessing their funds for months to years, as per the FDIC website.

Adding to the woes, the regulators closed New York-based Signature Bank on Sunday following Silicon Valley Bank’s Friday shutdown. In a joint statement, the U.S. Treasury Department and other bank regulators assured that all Signature Bank and Silicon Valley Bank depositors would be fully compensated, and no financial burden would be placed on the taxpayers.

“All of the depositors of Signature Bank and Silicon Valley Bank will be made whole, and no losses will be borne by the taxpayer,” they said in a joint statement.

Nonetheless, the collapse of SVB bank has reverberated throughout the startup community, leaving many entrepreneurs struggling to assess the repercussions for their businesses. As one of the most favoured banks for startups relocating to the US, the shutdown of SVB has deprived many of critical financial services and resources.

For those impacted by the SVB bank failure, the task of determining the next steps can seem overwhelming. But specific measures can be taken to triage the situation and minimise its effects on your business.

Assess the impact

The initial step is to evaluate the scope of the damage incurred by the bank failure. This involves scrutinising all financial transactions and accounts held with SVB to identify any outstanding payments, transfers, or investments that may have been affected. 

  • Gathering all pertinent documentation and records related to your SVB accounts is also essential.

Explore alternative banking solutions

Once you have gained a clear understanding of the situation, the subsequent move is to explore substitute banking options. 

  • Research other financial institutions that specialise in catering to startups and determine which alternatives may be most suitable for your business requirements. This may entail seeking recommendations and guidance from other entrepreneurs and industry experts.
  • For businesses impacted by the SVB bank failure, finding alternative banking solutions is crucial to keep their businesses running smoothly. 
  • Fortunately, there are several banks that offer easy and fast setup of multi-currency accounts, such as Wise.com, Revolut, Airwallex, Mercury bank and Brex. These banks can provide businesses with access to essential financial services and resources, even in the absence of traditional banking institutions like SVB.
  • One of the key advantages of using these alternative banks is their ability to issue virtual cards, which can come in handy for businesses with staff that require emergency facilities or for payments that need to be made on US cards. Wise, in particular, is known for its reliable virtual card services, making it a popular choice among entrepreneurs.

Update customer invoices and payment gateways

It’s important to note, however, that anyone switching to a new banking solution must update their customer invoices and payment gateways with the new banking details immediately. 

  • This is necessary to ensure that payables are not accidentally sent to old SVB accounts, causing disruptions in cash flow and financial operations.

Diversify your banking relationships

Another effective strategy is to split your funds across multiple accounts at different banks. Doing so decreases the likelihood of losing access to all your funds in the event of a banking issue. 

  • Additionally, splitting your funds allows you to take advantage of FDIC insurance, which provides coverage up to $250,000 per depositor, per account type, per bank. More here on FDIC
  • Many banks offer multi-currency accounts, which can be especially beneficial for businesses with international customers or operations. These accounts enable you to hold and manage funds in various currencies, reducing the risks and costs associated with currency conversions.
  • Another advantage of using multiple banks is the ability to access a broader range of financial services and resources. Each bank may have a unique specialisation, such as business loans or merchant services, that can benefit your business. 
  • By diversifying your banking relationships, you can take advantage of these varied offerings to support your business growth and operations.

Monitor your accounts

It’s important to remember that managing multiple accounts requires extra effort to stay on top of balances, transactions, and fees. But the advantages of diversifying your banking relationships and accessing FDIC insurance make it a wise investment of your time and resources.

The domino effect

According to David Lavecky, CEO of Canvas Digital, the recent developments represent a highly regrettable scenario. He points out that the unfolding events have far-reaching consequences for a multitude of tech companies that had placed their entire cash reserves in the hands of SVB. 

With doubts surrounding the accessibility of those funds in the short term, many of these companies may encounter challenges in fulfilling fundamental operational needs like payroll, supplies, and operating expenses.

“SVB was forced to sell $20bn of securities at a loss to fulfil withdrawal requests. Those sales and comments from the bank eroded confidence and caused a bank run – $42B was withdrawn in a single day. SVB was unable to meet all withdrawal requests. Last Friday, FDIC – The US bank regulator, stepped in, declared the bank insolvent, and took control.

“What’s unfolded is significant given so many tech companies held their cash reserves entirely at SVB; with access to those funds now uncertain, many may not be able to meet basic working capital needs like payroll, supplies, and operating expenses. 

According to the latest update, HSBC has acquired SVC UK. Reports suggest that SVB UK’s customers can continue to access their banking services and deposits without any disruptions from today. 

“Today, the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order,” Chancellor Jeremy Hunt said. 

Here’s the official statement.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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