What Does the SVB Collapse Mean for ECommerce Sellers?
March 13, 2023
As you may have heard, Silicon Valley Bank (SVB), the 16th biggest bank in the United States, was shut down this past Friday. As one of the biggest funders of startups and small businesses, this development has major implications for eCommerce sellers. The whole startup ecosystem, from software to logistics to manufacturing companies, is going to be affected. Many eCommerce sellers rely on funding and services from companies and startups that are tied to SVB. Currently, it is uncertain what will happen to companies’ money still held by the bank. In this article, we will explore how this situation could affect eCommerce businesses.
What happened to SVB?
SVB had been struggling financially since the Federal Reserve started raising interest rates in 2022. Higher interest rates make the cost of investing in startups, SVB’s main clients, less appealing to venture capitalists. With less cash on hand, many startups started pulling out funds. The bank wasn’t showing signs it could adequately replace this capital, which spooked several of its biggest clients and investors, who also started withdrawing money. This instability caused the California Department of Financial Protection and Innovation (DFPI) to close SVB and place it under the stewardship of the Federal Deposit Insurance Corporation (FDIC).
One good bit of news is that this financial trouble is unlikely to replicate with other major banks.
SVB mainly serves startups and tech companies, for whom funding has dried up in recent months, leaving the bank uniquely exposed. There is no indication this could lead to the kind of systemic collapse we saw in 2008.
What Is the Impact On ECommerce Sellers?
SVA’s downfall is going to have a major impact on businesses and tech companies that offered financial services that were processed by the bank. Since it had a wide web of influence, the whole startup ecosystem is going to be affected. While small eCommerce companies don’t rely on the kind of funding that startups and tech companies need, if they got their funding through such a company, there is likely to be a monetary aftereffect. However, many online sellers generally get funding from other sources, meaning their ability to finance themselves or find alternative sources of cash shouldn’t be majorly affected. If you notice that disruptions might affect your cash flow, try to find alternatives for your financing. Bank of America and Chase are in much stabler positions than SVB right now.
On the other hand, eCommerce sellers should pay close attention to their partners’ operational health. If you rely on a tech company to process your transactions or payroll, you should get guarantees that they can continue doing business without disruptions. Rippling, for example, a payroll service provider, saw delays in its payment processing operations, having been an SVB client.
According to a statement from Shopify CEO Tobi Lutke, the company only did a small portion of its banking with SVB, so Shopify sellers were mostly unaffected. For those that were, the company offered interest-free balance accounts to help them cover payroll expenses. Etsy faced delayed payments to sellers, with the company warning that this might continue. Poshmark, another eCommerce platform, announced that activities on its site wouldn’t be affected, as customer transactions didn’t involve SVB.
ECommerce businesses on platforms like Amazon that are more insulated from this damage shouldn’t face a major impact from SVB’s collapse. Since many online sellers depend on their sales for income, their cash flow situation should continue as usual. Going forward, it is important to make clear plans for the future and secure the necessary funding from reliable, and ideally diversified, sources.
How ECommerce Can Sellers Protect Themselves
8fig co-founder and CRO Roei Yellin gives these tips for protecting your eCommerce business from financial turmoil in uncertain times:
Plan ahead. This involves mapping out each step of your supply chain and planning out the flow of capital and goods. This can provide a better understanding of your operations and where you are most likely to run into issues if financing hiccups emerge. Having this information can help you ensure that the effect of disruptions is minimized.
Map out each batch of product individually. This means understanding the conditions it takes to produce and ship each product, as well as how fast they are likely to sell out. With this information, you can predict when the ideal time to make orders is, which is also when you need to have funds available to you.
Be as flexible as you can. During uncertain times it is best for eCommerce sellers to be as adaptable as possible. You need to be able to respond to unforeseen changes as fast as possible. One way to achieve this is to order smaller shipments of inventory more frequently. Shifts in the market can be addressed more quickly this way, while any shipping losses have less of an impact.
Optimize your cash flow. This means anticipating your company’s future needs, such as supply chain expenses and increased stock during peak sales periods. Cutting expenses where possible and keeping an eye on sales analytics and forecasts can help you ensure that you always have funds on hand in case disruptions happen. Flexible funding partners can also provide capital during cash flow interruptions.
Manage your inventory carefully. When you run out of stock, you miss sales opportunities, and when you overstock, you face higher storage costs, which harms your cash flow. Ensure that your manufacturer is able to provide your goods in the necessary timeframe. Partnering with a 3PL (third-party logistics provider) can help you manage inventory more efficiently.
Going forward, ECommerce sellers would do well to diversify their banking and funding partners. Spreading your resources across multiple channels reduces the risk of an overnight development having an oversized impact on your finances. In the short term, any company involved with SVB should keep an eye on developments. The current situation is unclear, first and foremost, so it is important to understand what is likely to happen next before taking definitive action.
Julian writes about the ins and outs of eCommerce at 8fig. He is passionate about exploring and covering the dynamic and fast-paced world of online retail.