Business Bankruptcies Jump as COVID Relief Ends

The end of pandemic relief and steep interest rates have ramped up corporate bankruptcies.

Business bankruptcy rates had been falling in the U.S. for a decade, but jumped 30% between September 2022 and September of this year,  the Financial Times (FT) noted in a report Monday (Dec. 18), citing court data.

Meanwhile, Germany — the largest economy in the European Union (EU) — has seen a 25% increase in bankruptcy for the first nine months of this year. And since June, monthly “double-digit growth rates have been consistently observed compared to the previous year,” the country’s statistical office Destatis said last week.

The FT report also includes data from Eurostat showing that bankruptcies across the EU rose 13% year-over-year in the first nine months of 2023, hitting their highest level since 2015.

Neil Shearing, chief economist at Capital Economics, told the FT that higher interest rates, along with the failure of “zombie companies” that had subsisted on COVID relief from the government, had driven the trend.

He pointed to “the cost of debt servicing” and “the rollback of pandemic support” as well as “high energy bills, particularly in energy-intensive sectors.” The hardest hit industries included transportation and hospitality, analysts told the FT.

The news follows reports from earlier this month about the hard times hitting the U.S. startup sector, where around 3,200 venture-backed firms in the U.S. have shut their doors this year. That figure likely does not take into account the number of companies that went out of business with little public acknowledgement.

Meanwhile, PYMNTS reported last month on the stark state of small businesses, following data from the U.S. Census Bureau showing that projected business formations for October were down 4% versus September, with the accommodation/food services, construction and professional services sectors all showing a decline in business applications.

And October saw the release of new data showing that almost 1,500 small businesses filed for bankruptcy under Subchapter V in the first nine months of 2023, nearly as many filings during the entirety of last year.

“The need for capital continues to be strong, even urgent,” that report said.

Data from PYMNTS Intelligence in October showed small- to medium-sized businesses (SMBs) having difficulty tapping sources of credit. Fifty-three percent of these businesses have “no current access to credit.”

Among the smallest companies surveyed, the situation is even worse, with 64% SMBs with $150,000 or less in yearly revenue saying they had no access to credit.