Off Topic But Still So Important

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I must apologize for going off topic, but with the financial crises on Wall Street all over the news… many small business owners (not to mention the rest of us) are wondering about the financial health of the banks, credit unions and other financial institutions we do business with every day. And while the current crisis didn’t hit the small business sector directly as yet, economic worries and fears over the fuel costs of the coming winter are likely to hit consumer confidence hard.
So… what happens if your bank fails, or is taken over?
In the case of a business (or any loan really) loan, you’ll continue to make payments, dealing with either the FDIC or the new owner of the institution. If you have $100,000 (or less) in deposits per taxpayer ID, the money is insured by the FDIC. You can visit the FDIC website to learn more about how this insurance works, and why you don’t need to panic if your bank fails. In the 75 years the FDIC has been in existance, no depositor has lost a penny of insured savings.
If you’d like to get a feel for your bank’s financial health, you can ask for what’s known as a “condition report” or access this information online with a few clicks as instructed here.
If you’re using a credit union, a popular choice for small business loans, you’ll want to look carefully at its strength. If you have concerns, don’t put your money there and find someplace else for the loan, especially in states like California and Florida where credit unions have made lots of home equity loans. You can also rest assured that just like bank deposits, credit union deposits are insured up to $100,000 hrough the National Credit Union Administration.
What if you need a business loan?
Now that the financial crisis is deepening, banks and other lenders will likely be a bit more careful making loans. Better late than never, I suppose. So long as you are an established customer with a good repayment record, you shouldn’t have much trouble. There will always be money for small business owners, but if you’re a startup, a restaurant, a consumer goods business, a wholesaler to the retail market (itself depending heavily on holiday season business), or just marginally profitable, you may find loans harder to come by.
What about the financial health of your insurance carrier?
Large insurance carriers have found themselves caught up in this mess… and that can be very troubling. Will they be able to pay your claim? Before you sign up for a new policy, or renew your current one, ask your broker to give you the company’s most recent financial statements.  You might also check its credit rating with an organization like A.M. Best that provides ratings, news and financial information on the insurance industry. If you’re worried about your coverage, spread your polices over several companies.
Beyond banking, the financial crisis might effect your business in other ways too.

  1. You’ll want to think seriously about passing on your price increases to your customers. Though small business owners hate doing this, the big companies never seem to hesitate, and customers do understand. 
  2. Employees, especially senior level ones, will not longer be able to retire at 55 or 60, so you’ll have access to their expertise longer. This might give you the pick of college grads who are competing for jobs not vacated by older workers.
  3. Keep a sharp eye on your own balance sheet, business model and on how much credit you extend to your own customers. Don’t wait to be told about a problem, be proactive and cautious.
  4. Venture capitalists and angel investors see this type of environment as the best time to pick up some good deals. 

To keep your business going strong, your best bet is to try and prepare yourself, mentally and financially, for the downturn. 

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