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Small biz bankruptcies up 44 percent in Q3 Print E-mail

By Matthew Quinn

Small business bankruptcies in the U.S. soared 44 percent in the third quarter of 2009, compared to a year earlier, according to data from Equifax.

There were 9,361 bankruptcy filings in September alone, up 27 percent from a year ago, data showed.

California remains the most negatively affected state with eight metropolitan areas among the 15 regions with the most commercial bankruptcy filings during September 2009.

Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas continued to lead the nation in small-business bankruptcy filings as they did at the end of the second quarter. The Denver-Aurora, Colo. and Santa Ana-Anaheim-Irvine, Calif. areas rounded out the top five most hard-hit regions.

"Economic pain is continuing for small businesses across the country," said Dr. Reza Barazesh, head of North American research for Equifax's commercial information solutions division. "We're still seeing hefty increases in the number of bankruptcies in a lot of major metro areas."

A number of east coast areas have shown improvement, however, including a 69 percent drop in bankruptcies in Charlotte, N.C. between the second and third quarters and a 49 percent decline in the New York-White Plains, N.Y. area.

For the analysis, Equifax analyzed Chapter 7, 11 and 13 filings of companies with 100 or fewer employees.

Managers at small businesses have been struggling not only with weak demand but also finding financing to help their companies through the recession.

Roughly a third of U.S. banks reported tightening standards on commercial and industrial loans to small outfits, according to the Federal Reserve's July survey of senior loan officers. That followed more than 40 percent reporting tougher standards in April and 70 percent in January.

The availability of financing to small businesses took a big hit over the weekend as CIT Group, a major lender to small and medium-sized businesses filed for bankruptcy protection. CIT, which reported $71 billion in assets in its Chapter 11 petition, provided funds to about 1 million businesses.

"Short term, [CIT's bankruptcy is] going to cause some difficulties for startups and smaller borrowers," Jean Everett, a partner at Hiscock & Barclay LLP focusing on financial institutions and lending, told Bloomberg. "CIT lent across so many sectors, it's sort of difficult to predict how it'll affect each sector."

CIT is by far the biggest factoring provider in the U.S., accounting for roughly 70 percent of all such lending, Bloomberg said.

 

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