Who and what does this impact?
The tech sector:
For too long unprofitable technology companies got away with borrowing money – burning through loans without turning a profit when money was “free.” Now, as banks tighten the reigns after seeing SVB’s collapse, these unprofitable technology companies will have a harder time finding new banks. Depending on their burn rate, some will run through cash reserves quickly, and without capital, they will be unable to make payroll. This will likely lead to further layoffs in the tech sector in the coming weeks and months.
While unfortunate for employees of these companies, this also means new waves of highly qualified talent will hit the jobs market, likely with more reasonable salary requirements. Small to mid-size businesses can and should take the opportunity to capitalize on this and hire key players they may have otherwise been unable to attract or afford.
This also means the unemployment rate is likely to increase after it climbed to 3.6% in February.
Businesses seeking loans:
This rapid bank closure sent shock waves throughout the banking industry and caused panic for many businesses. While trying to avoid additional bank runs, many banks will likely become more conservative and keep more cash on-hand. With more funds reserved in cash, some economists expect that fewer loans for new or existing companies will be available. Fewer loans could mean we will start to see new or unprofitable businesses start to fail in greater numbers.
In recent news, Amazon is now “encouraging” employees to come back to the office 3 days a week, when tech companies (including Amazon) had been leading the charge for remote work since the beginning of the pandemic. We predicted at the start of the pandemic fully remote work wouldn’t last forever because when profits dip, companies will bring employees back. We are now seeing this with Amazon as just one example and will likely continue to see more as more businesses feel the repercussions of the bank closure and subsequent economic impacts.
Are we out of the woods?
While we saw other banks shutter as a result, the federal government stepped in to ensure depositors had access to their funds within just a few days of SVB’s closure, hopefully minimizing its impact. As far as lasting implications, those are yet to be determined, but likely inevitable.
To see opportunity in adversity, we also predict a flood of talented professionals from the tech sector to hit the jobs market in the coming weeks, making this a great opportunity for small and mid-sized companies to finally, and fairly, compete against big tech.
Want to attract top talent? We can help.