This information is intended to assist small business owners in navigating the new banking environment. Written through the viewpoint of a former commercial banker, this will give small business owners a rare glimpse into how bankers think and is intended to help them develop a mutually beneficial relationship with a bank, prepare to get loans and evaluate offers.
Check your FDIC insurance coverage limits.
- Understand what the FDIC insures...and what it does not. The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs) up to the FDIC's insurance limit. The FDIC does not insure stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities, even if the small business purchased these products from an insured bank.
- Use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate the exact amount of insurance coverage that your small business has at each insured bank. EDIE is located on the FDIC's website at www.fdic.gov/edie/.
- Understand how the FDIC defines account ownership categories to maximize insurance coverage. The FDIC considers "single accounts" of sole proprietorships as personal accounts (not as business accounts) when calculating insurance coverage. Single accounts are deposits owned by one person. If more than one person is a signatory to an account and they have equal authority to withdraw funds, the FDIC may include these funds in the "joint category" thus allowing the sole proprietorship additional FDIC insurance.
Review the viability of your business plan.
- Make sure your business plan has three scenarios: best case, most likely, and worst case. Be prepared to execute each one.
- Review your business plan with trusted financial advisors including your banker, your accountant and your lawyer. Ask for their input and revise the plan as appropriate.
- If your plan calls for expanding your business, reassess the business/market needs for this expansion. Previous assessments may not be valid given today's economic uncertainty.
Keep your banker in the loop.
- Provide updates on how your business is weathering today's economic storm.
- Make sure you share all of the news - the good, the bad and the ugly. Bankers do not like surprises.
- Ask for feedback on your revised business plan scenarios.
- Withdraw cash from your business only when absolutely necessary. Think twice about taking money out of your business to support a lavish lifestyle. Bankers are unlikely to replace these funds via a loan.
- Review how your business collects, disburses and invests cash.
- Ask your banker to review your cash management systems to boost available cash flow. Your goal should be to accelerate your receivables, maximize your investment income and pay bills on time.
Keep your suppliers informed of your financial situation.
Trade credit is an important source of funds for most businesses. It is important to maintain good relations with suppliers since they provide you with the products and services you need to run your business as well as the credit to finance them. If you think your business might experience a cash flow problem, ask suppliers if they would consider extending their trade credit terms to you. Every dollar of trade credit extended is one less dollar that you will need to ask your banker for.
By Robert C. Seiwert, Sr. Vice President and Director, ABA Center for Commercial Lending and Business Banking