Small Business Banking Survival Guide
Forbes:
1. Understand what the FDIC insures–and what it doesn’t
The Federal Deposit Insurance Corp. insures all checking, savings and money market accounts and certificates of deposit up to a certain limit at FDIC-insured banks. The FDIC does not insure stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if the instruments were purchased from an insured bank. The recent financial “bailout plan,” passed on Oct. 3, bumped the amount of insurance to $250,000 from $100,000 through Dec. 31, 2009. To further boost confidence among depositors, 11 days later the FDIC enacted the Temporary Liquidity Guarantee Program, which offers unlimited FDIC insurance to all non-interest-bearing accounts–such as payroll accounts–through June 30, 2009. (Banks pay for the privilege of using this extra insurance, though depositors will surely feel it in the form of lower yields.)
2. Redefine your company’s ownership structure to your advantage
To get the most insurance coverage, you need to know how ownership categories are defined. One distinction involves “single” versus “joint” accounts. Each signatory on an account with equal authority to withdraw funds is eligible for $250,000 in FDIC insurance. Example: If Betty and Sue are equal partners in Betty & Sue’s Salon, they are eligible for $500,000 in FDIC insurance on their interest-bearing business account. Likewise, if their friend Joan decides to buy in as an equal partner with the same rights to withdraw funds on that account, the total available FDIC insurance jumps to $750,000.
(Note: The FDIC has a calculator on its Web site that allows you to determine the exact amount of money insured at each of your banks. You can also adjust the classifications of your accounts to maximize your insurance.)
3. Sweep extra funds into FDIC-insured accounts
Banks offer “sweep” accounts that electronically transfer (or sweep) funds in excess of a designated amount into less liquid, higher-interest-earning accounts at the end of each day. (For example, you might want to sweep those extra dollars from a checking account into a higher-yielding money-market fund.) That’s a smart move, as long as the account into which those funds land is FDIC insured too. If your bank doesn’t offer that option, be sure it collateralizes those swept deposits with essentially risk-free U.S. government Treasury bonds.
4. Spread deposit risk with CDARS
Deposit placement programs, like the Certificate of Deposit Account Registry Service, allow banks to spread their clients’ deposits among several competing lenders to mitigate the risk–effectively increasing the amount of insurance you can get through any one bank. How much more? Try $50 million. And get this: The banks eat the cost, not you. Most of the 2,000 banks across the U.S. offer this service, says Bob Seiwert, senior vice president of the American Banking Association. For more on these services, check out “Covering You Butt If The Bank Goes Under.”
5. Understand what happens if your bank merges with another
It’s safe to say we can expect more consolidation in the banking industry. When two or more FDIC-insured banks merge, the FDIC provides separate insurance on individual accounts for a limited time, generally up to six months, depending on the type of account. The grace period is intended to let business owners restructure their accounts to get the best insurance coverage.
6. Keep your banker up to date
No matter what the environment, you should meet with your banker face to face at least once per year. The American Banking Association’s Seiwert suggests increasing that to twice a year in the current conditions. Bring your last annual and most recent financial statements, as well as your short and long-term financial projections. Good questions to ask: If I needed additional funds, would they be available? If so, what would the conditions be? (For more on credit lines, check out “The Line On Credit Lines.”
7. Need we say it: Manage your cash
We have been pounding the drums for years at Forbes.com about smart cash management. Those lessons should be coming in handy now. For those who missed them, here are yet a few more reminders about how and why to manage your cash:
When Receivables Grow Moss
Addressing the delicate matter of converting delinquent customers into paying ones.
Nov. 2, 2005
If You Manage Nothing Else
Cash is the lifeblood of any small enterprise. Here’s how to keep an eye on it.
Sept. 27, 2006
A Mismatch You Can’t Afford
We are referring to the one between assets and liabilities.
Nov. 13, 2007
The 20 Most Important Questions In Business
Ignore them at your peril.
Nov. 21, 2007
Making Sense Of The World’s Biggest Market
A former Wall Street ace aims to help institutions navigate the $272 trillion interest-rate-swap market.
Feb. 28, 2008
An Entrepreneur’s Greatest Asset
In a recession, it’s called cash. How liquid are you?
July 15, 2008
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