Interest Rates Spell Doom for Businesses: Bankruptcy Rate Soars 17% in August
In August, business bankruptcy skyrocketed, with companies flocking to court in a desperate plea for protection from their creditors. Bloomberg reported (Sept. 5) that this surge can be attributed to a deadly combination of climbing interest rates and overwhelming economic headwinds. According to data provided by Epiq Bankruptcy, bankruptcies have increased nearly 17% since July. And the trend continued—this marked the 13th consecutive month of year-over-year bankruptcy growth according to the American Bankruptcy Institute. Shockingly, the number of Chapter 11 petitions filed climbed by a startling 54%. Ed Flynn, a consultant with the American Bankruptcy Institute, warned that while this number may be partially inflated due to large firms filing multiple petitions, the wave of corporate failures is still an undeniable reality. With so many businesses hitting rock bottom, it’s clear that now more than ever companies must strategize smartly in order to stay afloat.
As the Federal Reserve continued to raise interest rates in an effort to tackle rising inflation, companies found their debt obligations increasingly difficult to cover. This unfortunate trend resulted in an upsurge of bankruptcies nationwide, as evidenced by Bloomberg’s statistics showing 23 large-scale filings in a single month, with six such cases occurring within a single week. According to Gregg Morin, Vice President of Business Development and Revenue at Epiq Bankruptcy, this uptick in bankruptcies is becoming an undeniable reality.
The grim truth of this prediction was highlighted on Thursday (Aug. 31) when New York-based eCommerce company Benitago—which had raised $325 million in funding two years prior—filed for bankruptcy. As the Wall Street Journal reported, their downfall could be attributed to shifting consumer preferences during the closing months of the pandemic, resulting in a decline in eCommerce trends as lockdowns eased.
It seems clear that rising interest rates have exacted a heavy toll on the business world, pushing many companies into bankruptcy and presenting a stark reminder of the need to remain vigilant amid changing economic contexts.