Visa Inc will lower consumer credit interchange rates for small businesses in the United States by 10%, effective next month, to help merchants recovering from the COVID-19 pandemic, according to a document seen by Reuters yesterday. Visa, the world's largest payment processor, is reducing interchange rates for both online and in-person consumer credit transactions for 90% of U.S. businesses, the document showed. The changes will apply to merchants with $250,000 or less in Visa consumer credit volumes, according to a source familiar with the matter who declined to be identified because the document is confidential. Visa and Mastercard have seen more consumers turn to online modes of payments, as people use cards to pay for clothes, food, groceries and even leisure spending since the start of the pandemic. The two payment processors last year had postponed plans to raise the fees U.S. merchants pay when customers use cards online until April 2022.
To amend the Internal Revenue Code of 1986 to lower the corporate tax rate for small businesses and close the carried interest loophole, and for other purposes.
Small businesses are bearing the brunt of supply-chain pressures and rising prices, with many tapping their cash reserves or taking on debt just to compete with larger rivals, the Wall Street Journal reported. Most smaller firms don’t have the heft and sophistication to thrive in an environment of booming demand and short supply — the same forces that many of America’s biggest companies have been able to ride to higher earnings. High inflation, a tight labor market, stressed supply chains and dwindling liquidity are straining many small businesses, exacerbating the existing power imbalance between small and big firms. It all deepens the challenges that small companies have faced since the onset of the COVID-19 pandemic. And stresses will mount for those that take on more debt as the Federal Reserve raises interest rates. Many large corporations have used their scale to successfully navigate the twin threats of supply-chain disruptions and rising prices, with some reporting 2021 sales and profits exceeding 2019 levels. Small-business owners — those who serve consumers and those that sell to other businesses — say demand remains strong. But they face a longer-term impact on sales if their businesses cede customers to larger rivals with the resources to serve them. Two-thirds of small businesses impacted by supply-chain constraints said suppliers are favoring large businesses because of the volume of orders, according to a recent Goldman Sachs survey of more than 1,400 businesses. Eighty-four percent of small businesses said inflationary pressures had worsened since September, according to the Goldman survey, with more than three-quarters reporting that inflation had hurt their business’s financial health.
Democrats and Republicans are now weighing an extension of subchapter V's $7.5 million debt limit before it is due to sunset back to the previous amount under the Code on March 27, Bloomberg News reported. Subchapter V elections lets small businesses move through bankruptcy much more quickly and cheaply than a traditional chapter 11. There are no official creditor committees to fight, just a government appointed trustee with limited powers who assesses the company’s finances and helps reach consensus with debtholders. More importantly, company owners don’t risk losing control of their companies to creditors, a common outcome in bankruptcies. The provision grew more important when the pandemic ravaged millions of small businesses, and the government raised the debt cutoff to qualify for subchapter V to $7.5 million, from $2.7 million as part of the CARES Act in 2020, and then extended it an additional year. Without another renewal, the higher limit will expire next month, boxing out thousands of companies that could benefit as they face new challenges like supply chain woes and higher interest rates. “It has enjoyed broad bipartisan support from Congress so far, and I’m hopeful that we can soon come to an agreement to permanently authorize a higher limit,” Iowa Republican Chuck Grassley, the ranking member of U.S. Senate’s judiciary committee, said in a statement. More than 2,800 cases have been filed since the program began, according to court statistics. That number is likely to rise this year as banks and landlords get more aggressive about collecting overdue loans and back rent, restructuring advisers say. “You have a mountain of debt that has not been addressed,” said Robert J. Keach of Bernstein Shur (Portland, Maine) and co-chair of ABI's Commission on the Reform of Chapter 11 that included higher eligibility limits for subchapter V in its Final Report. Government assistance and eviction moratoriums have allowed small businesses to exist in a temporary limbo that can’t last. “I think there will be two or three times as many Sub Vs this year.” Read more.
U.S. small business confidence fell to an 11-month low in January amid persistent worker shortages and higher prices for materials, a survey showed today, Reuters reported. The National Federation of Independent Business (NFIB) said that its Small Business Optimism Index dropped 1.8 points to 97.1 last month, the lowest reading since February 2021. Scarce workers and rising labor costs remain the main areas of worry for businesses. Snarled supply chains as the global economy rebounds from the COVID-19 pandemic, fueled by massive stimulus from governments, have unleashed inflation. The pandemic, now in its third year, has also disrupted labor supply, making it difficult for goods to move from factories to consumers. There were a near record 10.9 million job openings at the end of December. The NFIB survey showed half of the 1,504 small businesses who participated in the poll reporting raising compensation. That was the highest reading in 48 years and was up 2 points from December. That corroborates to a surge in measures of wage growth tracked by the government. About 27% of small businesses said they planned to increase compensation in the next three months, down 5 points from December, but still historically high. Eleven percent said labor costs were their top business problem, down 2 points from December's 48-year record high reading. About 23% complained about labor quality.
Total, consumer and business filings continued their decline in January 2022 compared to last year, according to data provided by Epiq. Total filings in January 2022 were 26,195, representing a 19 percent decrease from the January 2021 filing total of 32,312. Consumer filings decreased 18 percent, falling to 24,696 in January 2022 from 30,263 in January 2021. The 1,499 commercial filings in January 2022 were 27 percent fewer than the 2,049 registered in January 2021. Commercial chapter 11 filings in January 2022 totaled 223, a 53 percent drop from the 479 commercial chapter 11 filings in January 2021. “Though filings continue to decrease, consumers and businesses are faced with less government relief, fewer lender deferments, rising inflation, worker shortages and supply chain challenges,” said ABI Executive Director Amy Quackenboss. “With mounting economic uncertainties amid the ongoing pandemic, congressional consideration of extending or permanently making the expanded eligibility limit of small businesses electing to file for subchapter V under chapter 11 will provide a proven path for small businesses to successfully restructure, reduce liquidations and save jobs.” Total filings for January decreased 6 percent from the 27,980 total filings in December 2021. Total noncommercial filings for January also decreased 6 percent from the December 2021 noncommercial filing total of 26,304. January’s commercial filing total represented an 11 percent decrease from the December 2021 commercial filing total of 2,197. Commercial chapter 11 filings in January 2022 represented a 28 percent decrease from the 310 filings recorded in December 2021. Read more.
To examine potential restructuring trends that may surface in 2022, ABI and PwC are hosting a special free abiLIVE webinar tomorrow at 12:30 p.m. ET. The panelists, who include Rachel Albanese of DLA Piper, Lorie Beers of Cowen and Company, Steven Fleming of PwC US and David Tyburski of PwC US, will also explore industries to watch and will hold a live Q&A session with the audience. ABI Editor-at-Large Bill Rochelle will moderate the session. To enjoy complimentary registration, please click here.
Hanging over the $800 billion Paycheck Protection Program, one of the government’s most expensive pandemic relief efforts, is a simple question: whether or not it worked. New research, drawing on millions of wage and payroll records, suggests a complicated answer: Yes, but at an extraordinarily high cost, according to the New York Times reported. One new analysis found that only about a quarter of the money spent by the program paid wages that would have otherwise been lost, partly because the government steadily loosened the rules for how businesses could use the money as the pandemic dragged on. And because many businesses remained healthy enough to survive without the program, another analysis found, the looser rules meant the Paycheck Protection Program ended up subsidizing business owners more than their workers. “Jobs and businesses are two separate things,” said David Autor, an economics professor at the Massachusetts Institute of Technology who led a 10-member team that studied the program. “We tried to figure out, ‘Where did the money go?’ — and it turns out it didn’t primarily go to workers who would have lost jobs. It went to business owners and their shareholders and their creditors.” Questions about the success of the program have gained urgency as the Omicron variant of the coronavirus disrupts the country’s economic upswing, intensifying calls from hard-hit industries like restaurants for a new round of federal aid. Congress rushed to create the Paycheck Protection Program in the pandemic’s early days, trying to prevent struggling small companies from gutting their work forces and adding to the staggering unemployment rate. The program offered business owners low-interest loans of up to $10 million to cover roughly two months of payroll and a few additional expenses. The loans would be forgiven as long as the money went to permitted costs. Nearly every company in America with 500 or fewer workers (and some larger ones) qualified: law firms, construction companies and restaurant chains as well as Uber drivers, freelancers and the bars, boutiques, grocery stores and hair salons that are the backbone of many Main Streets. Early studies of the program — which generally focused on the largest small companies — were not flattering, finding it had little effect on preserving jobs. But Michael Dalton, a research economist for the Bureau of Labor Statistics who drew on extensive wage records collected by the government that other researchers did not have access to, said it had performed better than he expected. Within one month of being approved, companies that got loans had an average head count 8 percent higher than comparable businesses that didn’t. After seven months, their work forces were still 4 percent larger, maintaining a lead even as hiring nationwide began to bounce back.
