Small businesses in trouble as rates rise

Small businesses are struggling to pay their bills on time, suggesting a wave of delinquencies may be approaching.

Defaults increased by 53% compared to the same period last year, according to the CreditorWatch index which measures business risk.

Companies struggling to pay each other are usually a sign of financial stress, with high inflation, rising interest rates, labor shortages, and supply chain disruptions. supplies starting to be felt.

Businesses in the food and beverage sector recorded the largest increase in their inability to pay, followed by the arts and leisure sector and the education and training sector.

Patrick Coghlan, director of CreditorWatch, said the rise in delinquencies is worrying.

“The multiple challenges many companies face, whether it be rising inflation and interest rates, labor shortages or the ongoing effects of the COVID pandemic, conspire to make paying the bills even more difficult,” Coghlan said.

He said the rise in delinquencies and delinquencies was somehow expected with the easing of pandemic measures.

Small businesses tend to be the least resilient to rising costs and interest rates because their margins tend to be tight and their cash reserves low.

The index also found that lawsuits, another indicator of business health, increased 51% year-on-year.

However, external administrations declined 9% in the month, but are still up 58% year-over-year.

Despite early warning signs that small businesses are in trouble, confidence and general business conditions remain strong.

The NAB Business Confidence Survey saw business confidence rise three points to +10 index points in August, while conditions rose one point to +20 index points.

Coghlan said AAP entrepreneurs and executives were generally optimistic, despite economic headwinds such as supply chain disruptions and inflationary pressures.

“There is a feeling that nothing can be worse than blocks, the feeling that ‘if we can get through the block, we can get over it,'” he said.

Anneke Thompson, chief economist at CreditorWatch, said the rise in interest rates has not yet been fully perceived by mortgage holders and businesses.

“We expect the real pressure to start building by October / November, just before the holiday shopping season,” said Ms. Thompson.

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