Written by Elizabeth Wilson of Entrepreneur.com
After eight bank failures through Aug. 1 this year, business owners are wondering if they can bank on their money being safe. The Federal Deposit Insurance Corporation offers coverage up to $100,000 for deposits per bank, but many business owners have bigger accounts.
"Security for the business owner is the No. 1 priority," says Peter Miralles, president of
Atlanta Wealth Consultants. "They don't want to be doing payroll and find out the bank just shut their doors, and they're only insured for $100,000 -- that may lead them into bankruptcy. Businesses have to be very careful."
According to the FDIC, when it seized
IndyMac Bank in July, there was almost $1 billion in uninsured deposits.
"I was shocked to hear how much people actually lost on that. A lot of people don't work with an adviser ... but [business owners] don't know it all," Miralles says.
Marilyn Landis, chair of the
National Small Business Association, says if your cash flow requires more than $100,000 in your account, you should look into the quality of your bank to make sure it's not likely to fail. If it does fail, any funds beyond what's insured could be lost.
But Landis doesn't recommend spreading chunks of $100,000 across several banks as a solution -- that creates too much chaos and work in an entrepreneur's life.
Banking experts and financial planning specialists agree on these tips to help you determine if your bank is sound and what to do if it's not:
Know Your Bank
Check out
FDIC,
Federal Financial Institutions Examination Council and your state's banking commission Web sites to determine your bank's rating, says Deborah Osgood, founder of
BUZGate, a business networking site.
Know what your bank specializes in, such as leasing or real estate.
Know your bank's delinquency rates.
Know your per-bank limits. The FDIC has very specific limits on how much of a deposit is insured. It's very important to obtain that information from the
FDIC Web site to understand the amount that is or isn't covered.
Ask your bank for its Federal CAMEL rating, administered by the National Credit Union Administration and based on five criteria: capital adequacy, asset quality, management, earnings and liquidity. The rating is from one to five, one being the best.
Read your bank's annual report. "Huge losses and a high ratio of non-performing assets to capital are warning signs," says Rick Bastian, president of
Blackhawk Bank.
Ask your bank if it's a Certificate of Deposit Account Registry Service affiliate.
"It's a new program that shares your deposits with other banks by negotiating a contract," says Frank Baldassarre, president and CEO of
e3bank. It's free, lets you deal with just one bank and can insure millions of dollars. It works like a certificate of deposit, says Cheri Bliefernich, senior vice president of the banking division at
Pulaski Bank in St. Louis.
"Anything over $100,000 is invested in the CDARS and laddered out for one, three, six months -- the higher the term is, the higher the rate is," Bliefernich says.
If you're really concerned about your bank, start a dialogue with one or two other banks. "That way you're hedging your bets, before you have a huge need," Baldassarre says.
Also, the FDIC has a
tool called the electronic deposit insurance estimator to help people determine their insurance coverage. Verify your accounts are covered by calling the FDIC consumer hotline (877) 275-3342.
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