Rising Small Business Bankruptcies Are a Red Herring
America’s smallest companies tell us a lot about the economy’s vulnerabilities. So far, they have been resilient in the face of rising borrowing costs.
Sign of the times.
Photographer: Spencer Platt/Getty Images
Small businesses1 account for close to half of US private sector employment, so there’s always considerable focus on their prospects, especially during periods of rising interest rates and contracting credit. Smaller firms have fewer financing options than larger peers, and they’re much more exposed to variable-rate loans, making them something of a canary in the coal mine. No doubt, the recent run-up in interest rates makes 2024 a year to watch, but America’s smallest employers mostly seem to be tolerating the headwinds and can continue to tread water for awhile longer — just not indefinitely.
Consider what’s happened so far this year. Small business bankruptcies within Chapter 11 (specifically, Subchapter V elections) rose consistently in the first nine months of the year, giving the appearance of a deterioration in firm finances.