Small business bankruptcies are increasing rapidly
In the United States, small business bankruptcies have increased. This time, interest rate increases began to affect small businesses, not the housing market.
The rise in small business bankruptcy filings in the United States is a sign that rising interest rates, strict lending standards and high operating costs are putting pressure on entrepreneurs.
At the same time, the end of some government aid programs that helped entrepreneurs during the Covid-19 pandemic also led to bankruptcies.
THE INTEREST INCREASES HAD A NEGATIVE AFFECT
The Federal Reserve’s (Fed) efforts to curb inflation by raising interest rates have been more painful for small businesses, which tend to operate with lower profit margins and smaller cash reserves than larger companies. big.
Nearly 1,500 small businesses filed for bankruptcy this year as of Sept. 28, according to the American Bankruptcy Institute. This figure was almost as high as that observed in all of 2022.
Total number of small business bankruptcies, by year
Bankruptcy filings are just one sign of financial stress. On the other hand, small business loan delinquencies have increased since June 2022 and are now above pre-pandemic averages.
Additionally, Brook Gotberg, an associate law professor at the University of Chicago, estimates that more than 90 percent of small business closures occur outside of bankruptcy. Many small businesses don’t have enough debt to file for bankruptcy, he said.
SMALL BUSINESSES EXPERIENCE THE RECESSION
An index that tracks the confidence of small business owners fell in September, according to a survey of more than 750 small businesses. 52 percent of respondents surveyed by Vistage Worldwide said they believe the country is approaching or in a recession.
Additionally, according to a survey conducted by Goldman Sachs with more than 1,500 small businesses in early September, 73 percent of small businesses reported that rising interest rates had a negative impact on their businesses.