“I thought my business was done”: How the SVB collapse affected a small business CEO and how he will handle cash in the future
By Beth Pinsker
Administration of the FDIC’s $250,000 insurance limit was not previously on Rafat Ali’s radar, but that has changed
Rafat Ali is sitting at his home office desk in New York on Tuesday following the collapse of the Silicon Valley bank, trying to get back to work to run his company Skift, a travel news and events organizer website. He’s been at this point since Friday, when he saw the news on Twitter and realized he’d frozen millions in the company’s business account.
“I thought my business was done,” says Ali, Skift’s chief executive officer and founder. “Friday morning I was completely confused.”
It brought him to tears – literally. He called his chief financial officer, then the company’s president. “I broke down both times,” he says. “I’ve covered bankruptcies as a journalist, and all I could think was you’re getting pennies on the dollar. That was in my head. It was traumatic.”
Prior to Friday’s FDIC shutdown, Silicon Valley Bank, owned by SVB Financial Group (SIVB), was the 16th-largest bank in the US and catered to startups and other small businesses. It was the first bank failure of 2023, quickly followed by Signature Bank and much speculation about the spreading contagion of bank runs.
Gathering themselves together, Ali and his team quickly got to work, working on a Google hangout all weekend while trying to sort out the liquidity issues and try to get access to their money. Part of that was muscle memory. As a travel-related company, Skift was hit hard in the first few weeks of the pandemic. That was a slow-motion descent into madness while this was a 72-hour debacle. They delayed alerting all of the company’s employees until their regular Monday meeting because most of its employees didn’t know a small detail, such as where the company does its banking. “What would we have communicated other than panic?” says Ali. “We had no concrete information.”
While they had no official communication with SVB over the weekend, Ali and his team did have a contact at the bank who was able to assure them fairly quickly that they would eventually have access to at least $250,000, they just didn’t know when. They had to follow the news to find out by the end of the weekend that the FDIC would give them access to all of their funds. On Monday morning they could start moving money.
“I haven’t been able to work on anything else so far. I can’t get that Friday morning image out of my head — that ‘Oh my god, my business is gone!’” says Ali. “Today is better.”
Why have millions in one place?
The FDIC insurance limit has long been $250,000 per depositor and account type, but this crisis has highlighted that many depositors have far exceeded that limit. It is estimated that SVB had more than $150 billion in uninsured deposits.
“No one thought of that,” says Ali. “Small businesses shouldn’t have to.
Small businesses like Skift need to keep lots of cash on hand — in their case, millions of dollars — and keeping everything under insurance limits would require multiple accounts with multiple institutions. For one thing, payroll accounting is no small task for a company with 75 employees. Ali says his payroll service provider requires funds to be available a week before distribution, which for them is Wednesdays. So the transaction was already underway at SVB when the lockdown happened. His events business has other big cash needs — venue rentals, travel, catering bills.
“It’s not something that our CFO has focused on or thought of, like putting money in T-Bills or money market funds. It’s not worth our time,” says Ali.
Ironically, Ali believes that SVB is probably one of the safest banks in the country right now, but he has started transferring some of his firm’s funds to other banks. Specializing in small businesses, One further segregates its accounts into partner banks to maximize insurance coverage.
“I’ve never had the chance to even explore it,” says Ali.
Most recently, he changed banks at the start of the pandemic when Skift was previously a customer of SVB and made great efforts to leave the bank. “We applied for PPP loans during the pandemic and it was quite a horrible experience,” he says. But then their new bank was bought by SVB and they became customers again.
Not knowing how long their money would be tied up, Ali made plans to personally cover the coming week’s paycheck, and it gave him the perspective he needed. “It’s my business, I won’t let it go down,” he says. In addition, officials reorganized cash flow so incoming revenue would keep them going for a while, and Ali was actually pretty happy with where the business was after 11 years because they were able to weather the shock.
And the thought that the money in the bank could be gone forever? “I didn’t have time to be scared,” says Ali, who calmed down between crisis calls with a school event for one of his kids and cooking dinner. “The distraction was needed, your life must go on.”
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