If you’re like most business owners, the recent fall of Silicon Valley Bank and Signature Bank has you rattled. Not to mention that inflation is spiking to 40-year highs and other market turbulence is plaguing the United States financial system.

Unfortunately, small to medium-sized businesses (SMBs) are the first to feel the brunt of the financial difficulties the country is facing. This makes it essential to understand what caused the collapse of these institutions, what bank failures mean for the SMB lending landscape, and how you can avoid any unfavorable changes going into the next few years.

What Caused the Collapse of Silicon Valley Bank?

Just before the collapse, Silicon Valley Bank (SVB) controlled over $210 billion in assets. A large portion of these funds were invested in long-term treasury bonds. However, rising interest rates made the yield on treasury bonds less attractive, creating significant unrealized losses.

When customers caught wind of this, they began a classic bank run, requesting more cash out of the bank than was on hand, causing even more panic. The typical bank in the United States has less than 3% of cash on hand. Luckily, the FDIC took swift action to avoid countless businesses losing uninsured amounts over $250,000.

What is the Current SMB Lending Landscape?

Did you receive an email from your financial institution regarding the collapse of SVB and Signature Bank? Most financial institutions are taking a closer look at their current policies surrounding lending. This includes tightening underwiring standards for term loans and lines of credit.

Financial institutions are generally required to follow nationwide policies, leaving little leeway to work with SMBs to find the optimal funding levels and terms. We will see many SMBs make the switch to small and private lending institutions to fulfill their financing needs.

What Does This Mean for Your Business?

Tightening lending procedures will make it difficult for your SMB to obtain the necessary funding to minimize cash flow disruptions and reach growth goals. You may see more debt covenants restricting your ability to purchase equipment. Additionally, increasing interest rates can make it difficult to secure the funding amount your business needs.

Going into the next few years, your business will most likely need to alter its approach to lending. Your banker at a traditional financial institution might not be the best fit for your business during these turbulent economic times.

Next Steps

Traditional financial institutions will no longer be the ones helping your small business grow. This makes it important to find alternative lending sources that can work with you throughout recessionary periods. 

At Capital Source Group, we want to help you fund your American business, regardless of the current state of the economy. We understand that the necessary funding can turn a surviving business into a thriving one.

Reach out to our team today to go over why we might be able to help your SMB in ways that traditional financial institutions can’t.