Small Business Bankruptcies are Rising Due to Increased Interest Rates and Operating Costs Today’s @Wall Street Journal highlights how the Federal
Small Business Bankruptcies are Rising Due to Increased Interest Rates and Operating Costs Today’s @Wall Street Journal highlights how the Federal
Reserve’s efforts to slow inflation by raising interest rates have been particularly painful for small businesses, because of their thinner profit margins and smaller cash reserves when compared to larger
companies. Some noteworthy points from the article:
- the increase in filings also reflects tighter lending standards;
- rising wages are also a culprit, with some small businesses reporting an increase of 35% in labor costs;
- subchapter V bankruptcy filings have nearly reached 2022's total already;
- government aid programs that helped during the pandemic have ended, while costs for things like wages and materials remain high.
- higher interest rates have disproportionately impacted small businesses because of their reduced access to capital;
- many small businesses are struggling with repayment of COVID disaster loans from the SBA, which seemed affordable but now strain finances;
- bankruptcy filings are only part of the picture: rising delinquencies and lowered confidence indicate wider financial troubles for small businesses;
- more than 90% of small-business closures occur outside of bankruptcy;
- an SBA official said the federal government has charged off 11.6% of the roughly $390 billion of Covid disaster loans issued during the pandemic while another 12.8% are more than 30 days past due.