On the heels of bad news for small businesses with the bankruptcy of CIT Group Inc. comes news from The Wall Street Journal that business bankruptcy filings rose 7% in October, after falling for several consecutive months.
A total 7,771 businesses filed for bankruptcy protection in October, up from the 7,271 in September. The increase continues a yearly trend of rising bankruptcies from the same time last year, despite what had been a drop in filings from month-to-month in August and September.
A report from the business information company Equifax Inc. suggests that, from the third quarter of 2008 to the third quarter of 2009, commercial bankruptcy filings among small businesses increased by 44%.
The Wall Street Journal cites the same tight credit market and decreases in consumer demand for products fueling the wider recession as continued causes for businesses going into bankruptcy.
Retail, Real Estate Hardest Hit
Retail businesses and real estate are the industries that continue to lead in bankruptcy filings. The impact of flagging success in these areas, however, can lead to a trickle-down effect with a much broader reach and negative financial impact on industries like home building and manufacturing, according to Georgia State University College of Law bankruptcy professor Jack Williams, who spoke to WSJ.
Bankruptcy filings are a lagging economic indicator so it's likely that we'll see bankruptcy filings increase for the next several quarters,
Williams told the journal.
The bankruptcy of CIT Group Inc., one of the largest lenders to small- and medium-sized businesses, will only serve to tighten credit markets, many believe, in an already troubling environment for small businesses. CIT finances a wide array of businesses, from retail operations like Dunkin' Donuts store operators, to energy companies.
In a positive turn, the Equifax report did note that bankruptcy rates seem to be improving in some metropolitan areas like Charlotte, North Carolina, New York-White Plains, and Atlanta, also indicating that the East Coast may be experiencing an earlier recovery from the recession than the West Coast.
According to the report, California continues to be the state hit hardest with bankruptcy filings, with eight of the top 15 metro areas in terms of bankruptcy filings.
