It is reported that rising interest rates are spurring the rapid increase in bankruptcies among small and medium-sized enterprises.
As the Wall Street Journal (WSJ) report The rise on Sunday (October 1) is being driven by filings under Chapter 5 of the Bankruptcy Code, a relatively recent provision that makes it easier for small businesses to reorganize.
The report cites the following data: American Bankruptcy InstituteAccording to the report, approximately 1,500 small businesses filed for Chapter V bankruptcy in the first nine months of 2023, about the same number as all of last year.
Additionally, defaults and delinquencies on small business loans have been gradually increasing since June of last year and are now above pre-pandemic averages, the Journal said, according to Equifax data.
WSJ quote Sonito KapilaUnlike large companies, small and medium-sized companies cannot issue stock or seek funding sources like private equity investors, said the bankruptcy trustee and head of the Bankruptcy Institute.
So did Jason Adkins, owner of Brighthouse Green Home Cleaning in Nashville, Tenn., who filed for bankruptcy earlier this year.
“It was a matter of life and death in terms of business survival,” said Mr. Adkins, who has 85 employees. “I don't own a portfolio of businesses. I can't withdraw from the assets.”
This is a situation PYMNTS has been tracking for several months. As we reported here in May, the Kansas City Federal Reserve's findings showed: Loans for small and medium enterprises This was a 17.7% decrease compared to the previous year. Additionally, 9% of small and medium-sized businesses (SMBs) said they had a harder time getting their last loan than before.
Meanwhile, the PYMNTS Intelligence/Enigma study Main Street Health Q1 2023 The study found that just 26% of Main Street businesses across the country had revenue equivalent to at least 60 days of revenue, and 17% had no access to an emergency fund at all.
“Half of construction companies say they have less than 30 days of cash available. About 45% of hospitality companies say the same,” PYMNTS wrote earlier this year. “These businesses rely on high spend from end consumers, are seasonal and are definitely brick-and-mortar, which means they also have higher operating costs.”
In terms of where these small businesses get their funding from, data shows that around a third are leveraging it. personal credit cardonly 17% have received loans from banks.