US Small and Medium Enterprises Face Wave of Bankruptcies, "Helpless" Amid High Interest Rates

1500 US Small Businesses Bankrupt by September
Average Loan Interest Rate Around 9% Within 3 Months
Short-term Loan Rates Up 3.1%p YoY
High Interest Rates Reduce Facility Investment and Hiring

The interest rate hikes resulting from the U.S. Federal Reserve's (Fed) aggressive tightening are also acting as a negative factor for the business conditions of small and medium-sized enterprises (SMEs) in the United States. As loan repayment costs increase due to high interest rates, the number of bankruptcy filings by U.S. SMEs has risen.

On the 14th (local time), the Wall Street Journal (WSJ) cited statistics from the American Bankruptcy Institute, reporting that nearly 1,500 SMEs filed for bankruptcy by the end of September. This is a scale similar to the total number of bankruptcies last year when the global economy was severely impacted by the pandemic.

The increase in loan repayment costs due to rising interest rates has dealt a significant blow to SME management. According to the National Federation of Independent Business (NFIB), U.S. SMEs have used short-term loans at an average interest rate of over 9% in the past three months. In September alone, the average short-term loan interest rate reached a staggering 9.8%, the highest since December 2006. The average short-term loan interest rate was 6.7% during the same period last year and only 4.6% in 2021. Loan interest rates have risen by more than 4 percentage points in two years.

The majority of SMEs reported that the business environment has worsened as interest rates soared. According to a survey conducted last month by WSJ targeting over 450 U.S. SME owners, 46% of respondents said that high interest rates negatively affected their business. Twenty-five percent of respondents said they have not yet been affected by the rate hikes but believe that if this trend continues, their business will face problems in the future.

There were also responses indicating that the capacity for additional borrowing is disappearing due to high interest rates. According to a survey conducted last month by Goldman Sachs of 1,200 U.S. SMEs, 53% of the responding companies said they cannot increase their loans further under the current interest rate conditions.

Since SMEs have low cash reserves and limited sources of funding, they may suffer greater damage than large corporations if high interest rates persist. Goldman Sachs reported that as of 2021, before the Fed began raising the benchmark interest rate, U.S. SMEs used 6% of their total revenue for loan repayments, while large corporations used only 2%. This indicates that SMEs carry more debt relative to their production volume and raise funds at higher interest rates compared to large corporations.

In practice, SMEs are experiencing management difficulties due to high interest rates, leading to phenomena such as being unable to purchase equipment necessary for business expansion or reducing workforce. WSJ introduced cases of U.S. small catering companies and precision processing firms, reporting that they canceled purchases of refrigerators and plans to hire new staff due to financial difficulties from loan repayments. According to a survey by Vistage Worldwide, a U.S. management consulting firm specializing in SMEs, more than 20% of SME managers said that high interest rates and increased loan repayment costs affected their hiring plans.

Some analysts interpret the increase in SME bankruptcy filings as a sign that the Fed's tightening policy is cooling the overall U.S. economy. WSJ explained, "The impact of U.S. interest rate hikes is becoming visible across the economy, including the SME bankruptcy crisis, a decline in home sales, and a slowdown in employment."

This content was produced with the assistance of AI translation services.