May Now Marks A New Three-Year High In Small Biz Rent Delinquency

NATIONAL 3-YEAR RENT DELINQUENCY RATE SURPASSED AGAIN | REVENUE PROBLEMS SURGE |  BOSTON, MA -- June 7, 2024: The small business economy was already at a low point in April, when 43% of SMB renters couldn't pay their rent in full and on time, and 54% faced rent spikes. But, unfortunately, May's numbers are even worse. 

Based on Alignable's May Revenue & Rent Report, published today, 46% of SMB owners couldn't cover May rent, up three percentage points from April, breaking yet another rent delinquency record for the second consecutive month. 

And a whopping 58% say their rent payments are up from six months ago, a four percentage point leap from April's figure. 

So, May's SMB rent delinquency rate -- 46% -- has now replaced April's as the worst rent delinquency rate we've seen in over three years, dating back to March 2021, when it reached 49%, amid the COVID crisis.  

At that time, small business owners faced mandatory shutdowns, mask requirements, customers who were afraid to leave their houses, and many other pandemic-related challenges. 

High Costs & Interest Rates Rival COVID Era Damage

Thankfully, those COVID issues are behind us. 

But skyrocketing prices, rent spikes, cumulative inflation, declining revenues, and still-high interest rates have combined to suffocate growth for many businesses, according to SMB owners polled in May.  

While COVID was devastating for many businesses, many of today's SMB owners who remained in business say the economic upheaval afterward has been worse for them. In fact, 86% said inflation over the past year has really hurt their businesses. 

Here's a chart showing just the past 16 months of rent delinquency rates. As you can see, right now, economic issues are intensifying for many SMB owners. 

More Struggles Lead To Financial Instability

The situation is so dire that only 29% of businesses founded prior to COVID are earning as much or more monthly as they did before the pandemic.

This means 71% of these businesses are still trying to recover financially, more than four years after COVID struck.

As the chart below shows, revenue woes for small businesses also reached a new peak in May, jumping another three percentage points since April to 71% from 68%.

This latest data is based on poll responses from 4,081 randomly selected small business owners surveyed from 5/1/24 to 5/31/24, along with historic input from thousands of other SMB owners who've taken Alignable polls. 

Alignable's Rent Reports have been widely used as a barometer of the overall health of the small business economy, by national media, legislators, and other influencers, since they were first released in April 2020. 

May's Rundown On Related Economic Issues

Below, please find many of the puzzle pieces contributing to the exceedingly high rent delinquency rate. 

• Labor Costs Rise Again: 70% of SMB employers say they're paying employees more now than last year (up nine percentage points from April). Of that group, 16% add that their labor costs are over 25% higher (up five percentage points from April). That 70% figure increased by 16 percentage points from just 54% in January.
• Credit Card Debt Grows: 62% of SMB owners say it's harder now than it was a year ago to pay off their credit cards due to the high interest rate, and 47% of that group note that their credit card debt is growing. 
• More Interest Rate Issues: The majority of small business owners (52%) say that the current interest rate continues to hurt them -- cutting into their margins, reducing consumer spending as their customers have less money, and making it harder to pay off loans or secure new ones. That figure is up four percentage points over April's figure of just 48%.
• Nearly Half Say Rates Must Drop Before Healing Can Begin: 46% assert that until the interest rate is lowered by at least three percentage points, they will be unable to start recovering economically. That figure is up four percentage points over April, when it was 42%. 
• Revenues Backslide: Both more established and newer small business ventures are suffering from lagging earnings. 
  • As noted above, 71% of  SMB owners who started before COVID said they're making less monthly than they did before the pandemic (three percentage points higher than April).  And, of that group, 46% are bringing home half or less than what they earned prior to COVID monthly. (That's up five percentage points month over month). 
  • And it's a bit worse for newer businesses: 72% of companies formed after COVID are making less than they did this time last year (up 12 percentage points from April). And so far, 50% of those are earning half or less of what they generated in May 2023, (up 15 percentage points from April). 
• Inflation's Still The Top Concern: 33% of SMB owners say it's their No. 1 worry, and the effects are cumulative, whether or not the current inflation rate is cooling.  
• Supply Costs Are Skyrocketing -- 89% of SMB owners said their supply costs are higher now than this time last year.
• Cash Crisis: Concerns over cash reserves are growing, as 39% of SMBs  only have one month or less cash on hand. And, unfortunately, this figure has increased by five percentage points over April's number: 34%. When business owners run out of cash, that can mean the end of the business, so these findings are quite significant & alarming. 

Travel/Lodging, Science/Tech & Transportation Worst Off

Every month, we see some big swings looking at industry and state data, so we've added a column also noting year-long averages to provide a broader perspective.  

Looking at the following two charts, it’s apparent that three sectors are hurting the most financially right now: travel/lodging, science/technology, and transportation. 

In all three cases, still-high interest rates for SMB owners renting commercial spaces right now are causing a lot of issues. And for travel/lodging and transportation, higher-than-usual gas prices are also reported to be part of the issue, as well. 

In May, 51% of those polled in the travel/lodging sector said they couldn't pay their rent in full, which was a dramatic 27-percentage-point jump from April. This category has seen significant increases month-over-month, but never anything quite this alarming. 

Their average rent delinquency over the past year is also on the high side at 38%, but not as bad as May's figure. We'll need to keep looking at these figures in the coming months. If they continue to increase, more issues could be ahead in the fall, since summer is usually a peak season for travel. 

Right behind travel/lodging, science/technology and transportation are tied for second place on the list of the industries suffering the most with SMB rent delinquency problems, with half of the SMBs in those sectors unable to make May's rent. 

50% Rent Delinquency For Transportation Sector

For those in transportation -- from trucking companies to Lyft drivers -- a 50% delinquency marked a 22-percent-point lift from 28% in April, not as high as what we saw in travel/lodging, but significant nonetheless. 

And it's the highest rent delinquency figure the transportation sector has seen in the past year. 

For science/technology, there was just a one-percentage-point drop between May and April, but 50% is still high anyway you look at it. 

And from what we've been hearing from those polled, ongoing, deep layoffs in the tech sector, partially because of the widespread use of AI, are causing problems with the smaller companies and freelancers often brought in to handle special projects or an overflow of work. 

But once layoffs happen, extra projects are often scrapped and big tech companies save money by letting contractors go, along with some of their full-time staffers. 

Here's what's happening in other key industries:

• 48% of musicians/artists couldn't pay rent in full, up five percentage points from April. Many noted in their comments that, with high inflation and high interest rates, fewer customers are hosting big events that would require entertainment -- and sales are down at some art fairs, too, for similar reasons. 
• Retailers are having a tough time, yet again, too, as 46% of those polled said they couldn't pay May's rent in full and on time, up 12 percentage points from a much-more promising 34% in April.  
• Restaurants are right behind at 45%, but that represents a dip of seven percentage points from April, when 52% reported rent problems.  
• Even though we're still officially in the Spring Market, real estate firms, and construction companies reported a rise in rent delinquency in May -- 44% of realtors and 43% of construction firms couldn't pay May rent. Many of the realtors say mortgage rates are too high, as are the prices of houses for many buyers. And the inventory is low, making it hard to close as many deals. Some of those who responded from construction firms said the costs of lumber and other supplies have cut into their margins, as have rising rents. 
  
• However, gyms and beauty salons saw declining rent delinquency rates, and those in the automotive sector held steady at just 36%. 
• Meanwhile, the lowest rent delinquency rate belongs to manufacturers -- landing at 30%. But that was up 10 percentage points from April and up two percentage points from this sector's 28% average, so it's something to watch in the coming months. 

NY, TX, VA, FL, MI, PA, IL, MA, & WA Top Delinquency List

States with some of the highest average rent delinquency rates over the past year are also many of the ones on the Top 10 List for May. And they're the states that usually charge renters the most, which certainly contributes to their issues.

1. New York -- 56% of SMB owners polled said they couldn't make May rent on time and in full, which is also a record high for the past year. We'll have to see if this continues to be this high in June, but it's not a huge surprise given how pricey rent in New York is now. And over the past year, New York's SMBs have averaged a high delinquency rate of 41%, which also is startling. 

2. Texas & Virginia tied for second place, as 50% of SMB owners in these states told us they couldn't cover rent in May. For Texas, that's down two percentage points from April. But that's seven percentage points higher than its very high average of 43% -- right now the highest average among all states.

Virginian SMB owners saw a 20-percentage-point increase in delinquency over the past month, matching the same delinquency reported back in October 2023. 

It's most notable to see that May's 50% delinquency rate in Virginia is 17-percentage-points higher than the state's 33% average, so hopefully this is more of a blip, and we'll see the rate descend next month. 

3. Florida -- Not far behind, 47% of Floridian SMB owners couldn't afford to pay their May rent in full, up 10 percentage points from April. (May's rate also is up 10 percentage points over Florida's yearly average of 37%).  

Among the Top 10 for May, Florida is the last state that's above the very high national average of 46%.

Here are the rent delinquency rates for the remaining Top 10 states:

4. Michigan & Pennsylvania are tied for fourth place, both at 46%, and both are up 13 percentage points since April.

5. Illinois, Massachusetts, and Washington State all have 40% SMB rent delinquency rates in May.  For Illinois, that's up 11 percentage points over April, after enjoying two months of lower rates. At 40%, Illinois also is tied for its high yearly average of 40%. 

Massachusetts is down seven percentage points from April, but is up six percentage points from its 34% yearly average.

Washington State is up only one percentage point from April, but is 10 percentage points ahead of its average, which is just 30%. 

6. Colorado at 38%, up 12 percentage points from April, a significant increase. May's figure for Colorado is also 10 percentage points higher than its yearly average of 28%, so both Washington and Colorado will need to be watched carefully over the next couple of months. 

7. Arizona & California are tied at 37%. For Arizona, that's up seven percentage points over April, and one point over its annual average of 36%. 

For California, there's some good news, as its May rate is down nine percentage points from April and tied with its yearly average of 37%. 

8. Ohio at 35% is up six percentage points from April, and tied with its yearly average of 35%). 

9. North Carolina's at 29%, up five percentage points from April. But it's still one percentage point better than its annual average of 30%. 

10. New Jersey is at 28%, down two percentage points from April, and eight percentage points down from its annual average of 36%.  Though it's on the Top 10 list, compared to many other states, May was a relatively good month for SMBs in New Jersey.

To see more detailed findings from Alignable's May Revenue & Rent Report covering other industries, states, or demographic groups, please contact me at chuck@alignable.com. 

To review past poll results, go here or to the Alignable Research Center.

About The Alignable Research Center

Alignable is the largest, AI-powered business networking platform for small business owners in the U.S. and Canada with 9 million+ members.

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.