What the banking crisis means for small business owners

As the uncertainty around banking continues, it’s time for small business owners to take heed and adopt some precautions for the months ahead, writes small business and financial expert David Koch.

The Silicon Valley Bank crisis has left many startups reeling – including some of our favourite unicorns, but what is the impact of this US banking crisis on the average Aussie business?

Despite a rise in business confidence last month, the ongoing uncertainty means global markets continue to spook. So small business owners should prepare for the worst as all this market uncertainty is having a ripple effect on spending.

The banking crisis explained

It all started out with Silicon Valley Bank (SVB). They lost billions because they invested in government bonds. Who would’ve thought you could lose money investing in government bonds? But they’d been caught out by rising interest rates, and a client base of tech businesses who wanted their deposits back.

It’s been a great decade for tech startups, and they’ve all been flush with cash, so they put all their money into SVB. This presented the bank with a unique problem – no one was wanting to borrow –  so SVB needed to invest their money instead.

What did SVB do? They put their money into government bonds. Seem sound enough … but … when you want to get rid of those bonds sometime in the future and interest rates are high, and you find it difficult, that’s where you get the losses.

And that started this ripple effect of regional banks in the US, and then Credit Suisse … All of a sudden, this nervousness then starts to bring down banks … and I don’t want to get too panicky about it, but it could be a precursor of a global financial crisis.

Is another GFC on the way?

If you look at some of the share market charts at the moment (above), they exactly mirror the share crashes of 1973 and 2008; the very start of them. So that’s why I think it’s a time to be cautious.

So, for small business owners, it’s time to reflect on your economic position and make sure you’re on top of your cash flow. This means making sure your invoicing is up to date, your clients are paying on time and that you quickly follow up on bad debt.

It’s also time to keep existing lines of credit sacrosanct – it’s vital to have a backup for the months ahead because I think we might need it over the next six months or so.

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