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Small businesses account for close to half of U.S. 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, according to a Bloomberg News commentary. 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. But business failures were uniquely low during the COVID-19 pandemic thanks to extraordinary federal support. Some businesses survived that would otherwise have gone under even in the absence of the COVID disruptions. So it’s conceivable that part of the increase in bankruptcy activity is simply a reversion to “normal” levels from artificially compressed levels in 2021-2022. That doesn’t mean that small businesses are bulletproof, of course, especially after the recent run-up in borrowing costs. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Small business bankruptcies are on the rise. Subchapter V filings — which most small businesses these days are using to reorganize a floundering business — have outpaced filings from 2022, CNBC.com reported. There were 1,659 subchapter V filings through October, compared with 1,553 for the full year earlier, according to the American Bankruptcy Institute. Businesses may have several options when it comes to filing for bankruptcy, and the right course to charter will depend on the business, the scope of its troubles, the owner’s intentions for continuing on in business and other factors. Subchapter V tends to work best for businesses with debts that are mostly straightforward. Using this option, eligible businesses can spread debt repayment over three to five years, a relatively lenient timeline. But there are restrictions. For instance, businesses can’t exceed certain aggregate debt levels, currently $7.5 million. Subchapter V is quicker and less expensive than a traditional chapter 11, but there are still costs involved, said Megan Murray, a founding shareholder of Underwood Murray, a law firm that focuses on commercial bankruptcy. It’s not like you throw your business into bankruptcy and avoid legal and administrative fees. “You can’t just walk away,” she said. Donald Swanson, a shareholder with the law firm Koley Jessen, said he’s helped hundreds of businesses work through financial challenges, but only put dozens in bankruptcy because there can be better ways to help owners recover. “Once you file for bankruptcy, you are kind of playing your last card,” Swanson said.

U.S. restaurant employment reached pre-pandemic levels in September for the first time in three-and-a-half years, according to a report released Friday, signaling a potentially broader recovery for the leisure and hospitality industry, Reuters reported. The number of Americans employed in food service increased by 61,000 in September from the prior month, Bureau of Labor Statistics (BLS) data released as part of the monthly U.S employment report showed. Food service and hospitality workers accounted for the majority of jobs added in the wider leisure and hospitality sector, which added 96,000 jobs last month. The gains in restaurant and bar employment last month were almost double the average of 37,000 jobs added monthly over the past year. Overall, American employers added 336,000 jobs in September, and the unemployment rate remained unchanged in September at 3.8%, the BLS reported.

Small-business bankruptcy filings are rising this year, a signal that increased interest rates, tighter lending standards and higher operating costs are straining entrepreneurs. At the same time, some government aid programs that helped entrepreneurs through the COVID-19 pandemic have ended, the Wall Street Journal reported. The Federal Reserve’s efforts to slow inflation by raising interest rates have been particularly painful for small businesses, which tend to operate with thinner profit margins and smaller cash reserves than larger companies. The increased bankruptcies are coming from filings under Subchapter V, a newer provision in federal bankruptcy code that makes it easier for financially stressed small businesses to restructure. Nearly 1,500 small businesses filed for Subchapter V bankruptcy this year through Sept. 28, nearly as many as in all of 2022, according to the ABI. Many small businesses came out of the pandemic in solid financial shape and are looking to grow. The share of business owners who expect revenue and profits to increase in the next 12 months grew in September, as did the share of those planning to expand their workforce, the survey found. Still, needed capital is more expensive to access and can be difficult to obtain. Small businesses have fewer options for raising capital than bigger companies, which can issue stock or bonds, or go to private-equity investors and other sources for funding, said Soneet Kapila, a bankruptcy trustee and ABI President.