• Small Business Struggles: 2024 has seen a surge in bankruptcy filings among small and mid-sized businesses, with 346 companies filing in the first half of the year, driven by financial instability and high interest rates.

• High Borrowing Costs: Small businesses are particularly vulnerable to the sharp rise in interest rates, making it difficult to access credit, maintain inventory, and purchase equipment, unlike larger corporations.

• Consumer Spending Decline: Reduced consumer spending, coupled with lingering post-pandemic challenges, is exacerbating the financial strain on small businesses, underscoring the need for targeted support to ensure their survival.

The economic landscape in 2024 is proving tumultuous for small and mid-sized businesses, which are disproportionately affected by the current financial instability. While large corporations often have the resources to weather economic storms, smaller enterprises are struggling, leading to a notable increase in bankruptcy filings.

In the first half of 2024 alone, 346 companies have filed for bankruptcy or sought to liquidate their assets—the highest figure since 2010 when 467 businesses faced similar fates. June saw 75 companies file for bankruptcy, marking the largest monthly total since early 2020. This surge in filings reflects a broader trend of businesses, particularly those in non-essential sectors like restaurants, clothing stores, and car dealerships, facing severe financial strain.

One significant factor contributing to this crisis is the sharp rise in interest rates, which are currently at their highest level in nearly 25 years. This has placed a heavy burden on businesses that need to borrow to maintain inventory and purchase equipment. Unlike large corporations that can raise funds through various financial markets, small businesses often struggle to access credit. Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management, points out that small businesses are particularly vulnerable to high borrowing costs, which can jeopardize their financial stability.

Consumer behavior also plays a critical role. Traditionally, summer sees increased spending as people engage in activities and travel. However, this year, consumer demand has dipped significantly, with individuals opting to save more and spend less. This decline in consumer spending compounds the challenges faced by small businesses, reflecting broader economic pressures and the lingering effects of the COVID-19 pandemic.

The pandemic initially brought a wave of support programs aimed at helping small businesses, but as the economy recovered, the need for such support diminished, and the pace of new business creation surged. In 2023, there were a record 5.5 million applications to start new businesses. However, the growth rate of new business applications has slowed in 2024, suggesting that the initial post-pandemic optimism may be waning.

Amid these challenges, the Federal Reserve’s decision to maintain high interest rates for almost a year is aimed at curbing inflation, which could offer some relief to struggling businesses. Nonetheless, the high cost of borrowing and reduced consumer spending continue to place small businesses under immense pressure.

Small businesses are often considered the backbone of local communities, contributing to their vibrancy and economic health. As they face unprecedented challenges, there is a growing need for targeted support to help them navigate these difficult times and ensure their survival.