Small business bankruptcy filings are increasing, likely a result of the Federal Reserve’s increased interest rates as well as higher operating costs and stricter lending standards. Small-business owners received a decent amount of help during the pandemic through various government programs. However, as many of these programs come to an end, small businesses are feeling the impact in a big way.
In a more challenging time to navigate these circumstances, small businesses, by their general nature, operate on thinner profit margins and smaller cash reserves than do larger corporations. According to a report from the Wall Street Journal, this has led many small businesses to file for bankruptcy under Subchapter V, a newer provision in federal bankruptcy code that makes it easier for financially struggling businesses to restructure.
Put into effect in February 2020, Congress created Subchapter V, as standard Chapter 11 bankruptcy filings were far more expensive and restrictive for small businesses. As more small businesses became aware of this option, filings for bankruptcy grew.
Based on information from the American Bankruptcy Institute, nearly 1,500 small businesses have filed for Subchapter V bankruptcy this year through September 28, 2023. This number is nearly as high as the total of all businesses that filed in all of 2022. Along with the increase in bankruptcy filings, small business loan delinquencies and defaults have been trending upward since June 2022, a strong indication of financial stress.
Despite an increase in the share of business owners that expect revenue, profit and workforce growth in the next year, there is still a struggle for these business owners to obtain the capital needed for their growth. A survey conducted by Goldman Sachs in late August and early September indicated that 73% of small businesses reported rising interest rates were negatively impacting their business. Particularly as COVID relief programs end, small-business owners are having a more difficult time navigating the many financial changes.
If you are a small-business owner facing financial difficulties and feeling uncertain about what your next step should be, reach out to a member of our team today to discuss how filing for bankruptcy may alleviate stress and provide a pathway to stability. Contact Sader Law Firm at (816) 561-1818 for a free phone consultation and information on options for your business.