Nearly 40% of small businesses in the US failed to pay rent in October

Small businesses in various states are struggling to pay their rent, a new report shows, with rent delinquency at nearly 40 percent this month. 

The findings, published Tuesday by Boston-based business tracker Alignable, are raising more than eyebrows, as they illustrate the stark effect inflation is having on everyday Americans. 

The survey of 4,789 randomly selected small business owners saw more than half of respondents say their rent is at least 10 percent higher than six months ago.

If you go back seven months, the majority said their rents had increased by at least 20 percent.

Moreover, the study found that roughly 37 percent of small businesses – almost half of all Americans working in the private sector – were left unable to pay rent in October.  

Compounding concerns is the fact that several states, including New York and California, are well over the already-high national average.

Small businesses in various states are struggling to pay their rent, a new report shows, with rent delinquency up 37 percent on the month. Compounding concerns is the fact that several states, such as New York, and California, are well over the already-high national average

Offering an explanation for the phenomenon, study author Chuck Casto wrote that small business owners are steadfast, but that their incomes are ‘basically being eaten away by inflationary pressures’ as grim figures continue to rock financial markets. 

Alignable discerned that one-third of businesses are at risk of closing if revenue does not ‘ramp up’ significantly in the coming months, as consumers shy away from spending amid fears of an impending recession.

As to the reasons for the short funds, poll-takers blamed higher rents, the impact of more than a year of high inflation, steeper-than-usual gas prices, increases in supply chain costs, rising labor expenses and shortages, and reduced consumer spending.

The study further found that of the nearly 5,000 randomly selected businesses that it analyzed in cities across the country, roughly 51 percent saw some sort of rent hike in October, while 59 percent said consumers are spending less this month than last.

The study further found that of the nearly 5,000 randomly selected businesses that it analyzed in cities across the country, roughly 51 percent saw some sort of rent hike in October, while 59 percent said consumers are spending less this month than last. Pictured is an outdoor eating area at a NYC restaurant, one of several industries that saw record rent delinquency this month

The study further found that of the nearly 5,000 randomly selected businesses that it analyzed in cities across the country, roughly 51 percent saw some sort of rent hike in October, while 59 percent said consumers are spending less this month than last. Pictured is an outdoor eating area at a NYC restaurant, one of several industries that saw record rent delinquency this month

With gas and food costs on the rise, and inflation the highest it’s been in 40 years, the sales that businesses have been able to carry out have been eclipsed, putting pressure on the working class’ already hampered wallets.

In September, the study found rent delinquency had been at a six-month low, fueled by optimism for the final quarter of the year’s earning potential as some small business owners reported an increase in sales.

However, just a month later, nearly 40 percent of small business owners found themselves unable to afford their monthly rent in full and on time, compared to the 30 percent seen in September.

Core inflation, which excludes volatile food and energy prices, rose 6.6% in September from a year ago, a 40-year high, while total inflation rose 8.2%

Core inflation, which excludes volatile food and energy prices, rose 6.6% in September from a year ago, a 40-year high, while total inflation rose 8.2%

The study found that a wide array of industries are well above the national average of 37 percent – already an astoundingly high number when compared to other months over the past two-and-a-half years.

Leading the pack were businesses in the education sector, up 13 percent from last month to an astronomical 57 percent – the highest ever seen in that subsect of businesses.

Not far behind were two more types of businesses that also saw record delinquency in the month of October – the automotive sector and restaurants.

About 49 percent of restaurants were unable to pay their rent this month, up from 36, in September, while an identical 49 percent of car dealership and repair shop owners defaulted on their October rent.

According to Alignable, those business owners explained that they are still struggling with supply chain issues ranging from increasingly costly metals and electronics, and a scarcity of inventory for products and parts their customers need to fix their vehicles. 

And with gas and food costs on the rise, and inflation the highest it's been in 40 years, the sales that businesses have been able to carry out have been eclipsed, putting pressure on the working class' already hampered wallets

And with gas and food costs on the rise, and inflation the highest it’s been in 40 years, the sales that businesses have been able to carry out have been eclipsed, putting pressure on the working class’ already hampered wallets

Additionally, 37 percent of real estate agents admitted to the firm that they failed to pay their rent this month, up 27 percent from the one prior, suggesting that the fallout from a slowdown in home sales as higher mortgage rates cool the housing market has already become painfully apparent.

Small retailers by and large also failed to cover their October rent this month, Alignable found, with 43 percent saying they reneged on their rent.

That’s up a marked 12 percent from last month and is close to the highest rent delinquency they’ve had all year, topped only by the 44 percent recorded in July.

Businesses offering transportation were similarly not spared by rising rent delinquency month, jumping 8 percent from September to a rate of 46 percent.

Polltakers employed by companies like Lyft, Uber, and other taxi agencies cited reduced consumer spending activity and higher than usual gas prices for their failure to pay.

Added operational expenses and labor shortages felt by trucking companies ensnared by the nation’s ongoing supply chain woes, which stem from bottlenecks seen during the pandemic, also contributed to the pronounced delinquency rate.

With that said, several states have recorded delinquency rates markedly higher than the national average of 37.

Leading the list for October was the state Massachusetts, where more than half of respondents reported that they couldn’t pay their rent in full and on time.

With a rate of 51 percent, the delinquency rate is the worst the state has experienced all year, up 15 percent from September and 18 percent from August. 

Not far behind was New Jersey, which recorded a record-breaking rent delinquency of 49 percent, up 22 percent from last month and markedly higher than any other month since December. 

New York’s small businesses also broke its rent delinquency records, with 45 percent unable to pay in October – up 6 percent from last month. 

California, meanwhile, tied their record for the worst rent delinquency this year – with 44 percent of respondents saying they did not pay rent in October. 

Pennsylvania also broke a 2022 record for the month as well, with 44 percent of business owners admitting they could not afford this month’s rent. 

Car dealers and repair shops said they are still struggling with supply chain issues ranging from increasingly costly metals and electronics, and a scarcity of inventory for products - leading to record amounts of business owners reneging on October rents

Car dealers and repair shops said they are still struggling with supply chain issues ranging from increasingly costly metals and electronics, and a scarcity of inventory for products – leading to record amounts of business owners reneging on October rents 

That number came as doubled the amount of business owners unable to pay in September, which at that point had been 22 percent

Florida’s small businesses also struggled with rent in October as well, with 39 percent failing to fork it over – up 16 percent from September.

Texas, meanwhile, also surpassed the national average, with 38 percent of respondents unable to handle their rent – up 14 percent from September.

The study found that roughly one-third of firms in all 50 states are at risk of closing if revenue does not increase in the coming months. 

With that said, the Fed meets Wednesday and is expected to raise interest rates once again to address rampant inflation.

 That meeting comes just two days before the also highly anticipated jobs report, which experts say could point to even more signs of the diminishing US dollar. 

This alignment of factors will likely affect small businesses and companies alike ahead of the release of end-of-year earning reports, which financiers say is sure to lay bare the true, embattled state of the US economy.

The Fed's has hiked interest rates from near zero in an attempt to curb inflation

The Fed’s has hiked interest rates from near zero in an attempt to curb inflation

‘Earnings season might not be bad,’ said Yung-Yu Ma, chief investment strategist at BMO Wealth Management of the country’s ongoing economic situation, ‘but being strong enough to reverse this tide will be a tough go.’

It comes as another study revealed that despite a cooling housing market, rents across the nation are still on the rise, with New York still the least affordable place to live in the US.

The report, from real estate tracker Zumper, found that dozens of other cities have seen massive year-over-year rent increases since plummeting during the pandemic.

Leading the way for the most unaffordable was, unsurprisingly, the Big Apple, with an astronomical $3,860 median rent for a one-bedroom.

Rounding out the top ten were some more of the usual suspects, such as tech and startup haven San Francisco, nearby San Jose, and recently surging Miami – with six of the cities situated in California.

However, in somewhat of an upset, Boston leaped over San Francisco to land itself the second spot, rising 5.9 percent this month alone to an average rent of $3,060.

That’s up nearly $1,000 – or 50 percent – from last year, when the City on the Hill recorded a $2,150 average rent and $400 from July.

It comes as another study revealed that despite a cooling housing market, rents across the nation are still on the rise, with New York still the least affordable place to live in the US.

It comes as another study revealed that despite a cooling housing market, rents across the nation are still on the rise, with New York still the least affordable place to live in the US. 

The report, from real estate tracker Zumper , found that dozens of other cities have seen massive year-over-year rent increases since plummeting during the pandemic

The report, from real estate tracker Zumper , found that dozens of other cities have seen massive year-over-year rent increases since plummeting during the pandemic 

Leading the way for the most unaffordable was, unsurprisingly, the Big Apple, with an astronomical $3,860 median rent for a one-bedroom and $4,300 for a two-bedroom

Leading the way for the most unaffordable was, unsurprisingly, the Big Apple, with an astronomical $3,860 median rent for a one-bedroom and $4,300 for a two-bedroom

Close behind was San Francisco, which fell two spots from last year when it earned the dubious distinction of most costly. The city saw its average rent swell to $3,020 from $2,660 this time last year.

It comes as residential sales across the nation have slumped as rents rise by as much as $100 percent in several cities, as landlords who took a loss during the pandemic attempt to recoup their bottom lines. 

Also contributing to the dramatic uptick are recent rising mortgage rates, which are making it too expensive for prospective homebuyers to purchase, driving up demand for rentals often owned by opportunistic property managers.

President Joe Biden, meanwhile, asserted in an interview Thursday that the United States is not suffering from record inflation.

Having already lied about gas prices being down compared to when he took office, he was asked about the 8.2 percent rate America is currently battling.

The reporter asked: ‘You’ve referred to the midterm election as a choice rather than a referendum. Given record inflation, why should voters choose Democrats?’

Biden replied: ‘Because it’s not record inflation anymore, I’m bringing it down. Look what we inherited.’ 

While inflation is down slightly from a 40-year-high in June of 9.1 percent, the 8.2 percent is still higher than at any point in the previous four decades.   

Maria Flores

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