Silicon Valley Bank

Feds Bail Out SVB – What Does This Mean for Etsy Sellers?

On Friday, we broke the story that Etsy had to delay payments to sellers after Silicon Valley Bank (SVB) was taken over by government regulators.

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The company initially informed sellers by email that payouts would be delayed after sellers went on social media wondering why their Friday payouts were delayed until Monday.

Over the weekend, Etsy confirmed they were working to alternate solutions to process the payments, but the company never detailed what its exposure was to SVB.

Many sellers have panicked since Friday, putting their stores on vacation or not listing new products because they were afraid they would never get paid.

As we mentioned in our original story and in the update on Saturday, we didn’t believe there was a great risk of not being paid. Etsy is fundamentally financially sound and unlike startups that often have most of their funds with one banking institution, Etsy likely was divested across many larger banks.

In addition, it’s not even known if Etsy has funds directly in SVB. It could be a financial partner that processes seller payments that was affected by the SVB situation.

There were numerous users in the Etsy community forums and on social media that kept claiming or believing this was Etsy’s primary bank. There is no indication that Etsy had any or all its funds in one bank, or that any of Etsy’s funds were actually in SVB.

Other larger public companies such as Roku filed SEC notices disclosing their exposure to the failed bank. And in the case of Roku, it amounted just to about 1/4 of their total deposits.

Etsy did not file such a notice!

The reason the SVB failure became a massive concern across the tech and startup industry is that nearly 90% of all accounts reportedly were above the $250,000 FDIC deposit insurance limit.

With the FDIC taking over SVB, on Monday all account holders would only have access to the first $250,000 in their accounts. The status of the remaining funds would be inaccessible until the government could find a buyer for the bank or sell off assets.

Some reports suggested that SVB account holders could lose about 10% of their deposit value. But the more important factor was that the money would not be available for some weeks or months until there was a solution to the situation.

Good News From The Feds

Late on Sunday afternoon, the Treasury, Federal Reserve, and FDIC released a joint statement that all deposits in SVB will be available. In short, the government is bailing out SVB, not putting any deposits at risk, and making all funds available on Monday, including those exceeding the $250,000 FDIC Insured limit.

This is an extraordinary step. But apparently, it was driven by fear that SVB could be just the beginning or could cause runs on other banks. In fact, a second bank in New York was shuttered by the government on Sunday as well.

What Does This Mean for Etsy Sellers?

In Saturday’s statement to the seller community, Etsy said it could possibly take a few business days to restart payments as the company was seeking alternative solutions with other payment partners.

Most likely, this meant having to change backend systems to handle payouts for sellers.

Now, with all SVB funds becoming available on Monday again, it’s possible that Etsy can process payments on Monday through its original payouts method.

But there is also a possibility that Etsy has made too many changes to quickly revert to their original payment solution for them to process payments on Monday.

So, we will have to wait until Etsy provides an update regarding this situation, hopefully by tomorrow.

However, we strongly believe sellers should not worry about getting paid. This is a fast-moving situation to which Etsy has to react. We remain confident that Etsy will solve this situation in due time, even if it may take a couple of days.

Sellers Should Always Be Prepared For The Unknowns

For sellers that felt the pinch because of this payout delay, it should be considered a wake-up call that running a business sometimes may mean not everything runs as expected.

There is no reason to believe Etsy did anything wrong here. And while it would have been nice to have a little more detailed information, this caught many people and companies off guard they had to scramble to adjust their operations.

Sellers should always maintain some business reserves (or at minimum a dedicated credit card) for the unexpected, enabling them to bridge a short-term cash flow crunch.

The lack of a sound cash flow strategy is the biggest killer of micro and small businesses. While it’s often easy to get started on marketplaces like Etsy, many small sellers don’t think of unexpected problems and how to manage them.

While this situation should be resolved within the next few days, if not on Monday, hopefully, it makes sellers look at their businesses and develop a backup plan for the unexpected.

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