April Marks The Worst Month For SMB Rent Delinquency In 3 Years

RENT REPORT | NEW RECORD FOR SMB RENT DELINQUENCY  |  BOSTON, MA -- April 26, 2024: Several economic challenges have culminated in April, leaving small business owners with the highest national rent delinquency rate in over three years. 

Unfortunately, 43% of small business renters were unable to pay their rent in full and on time this month.

That's up four percentage points since March, also creating the largest month-to-month surge in rent delinquency in over a year, as this chart shows.

The last time the delinquency rate was as high (or higher) than it is right now was way back in March 2021, when it reached 49%.  At that time, the U.S. was fully immersed in the COVID crisis. Small business owners faced mandatory shutdowns, mask requirements, customers who were afraid to leave their houses, and many other pandemic-related challenges.

Undercurrent Of Economic Instability

Keeping all of that in mind, the fact that 43% of small business owners are delinquent in paying their rent in full now -- long after COVID restrictions and fears have ceased -- is very worrisome. 

It highlights what many small business owners have shared with us -- that all of the economic issues following the COVID Era were as bad, if not worse on many businesses than the pandemic itself. Those post-COVID economic hurdles have prevented many small businesses from recovering fully financially. 

In fact, based on our most recent research, only 32% of businesses founded prior to March 2020 are earning as much or more monthly as they did before the pandemic. 

This latest data is part of Alignable's April Small Business Rent Report, released today, and is based on poll responses from 4,171 randomly selected small business owners surveyed from 4/1/24 to 4/24/24, along with input from another 180,000+ SMB owners who've taken Alignable polls over the past three years. 

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

What's Fueling Such A High Delinquency Rate?

Increasing costs, including what SMB owners are now required to pay for rent, coupled with declining revenues help to explain April's exceedingly high rent delinquency rate. This chart highlights the issue with revenues.

Delving deeper into the issues, here's more detail on revenues and other factors contributing to the current state of small business in the U.S.:

• Revenues Backslide: Both more established and newer small business ventures are suffering a loss of revenues.
  • 60% of companies formed after COVID are making less than they did this time last year -- and so far, 35% of those are earning half or less of what they generated in April 2023. 
  • And it's even worse for businesses founded before March 2020: 68% of  those owners said they're making less monthly than they did before the pandemic hit.  And, of that group, 41% are bringing home half or less than what they earned prior to the pandemic monthly.
• Rent Spikes: 54% of SMB owners in April said their landlords were charging them more now than six months ago. Some 11% of that group is required to pay over 20% more.
• Inflation Worries Rise: 33% of SMBs say it's their No. 1 worry, and the effects are cumulative. That concern is growing as the inflation rate increases.  The percentage of SMBs citing inflation as their top concern is up two percentage points from March (31%), and six percentage points since January (27%). 
• Gas Prices Slow Progress: The cost of gas has taken quite a toll on many small business owners. Gas prices have escalated nearly every week in 2024 so far.
• Supply Costs Are Through The Roof -- 89% with pre-COVID businesses are paying a lot more for their supplies now than they did before the pandemic. And 42% of that group is faced with prices over 25%. And 71% of SMB owners said their supply costs are higher now than this time last year, with 23% noting prices are over 25% higher than they were in April 2023.
• Interest Rate Stagnation: 48% say that current, still-high interest rates continue 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. Issues with credit card debt are emerging, too.
• Rebound On Hold: 42% assert that until interest rates are lowered by at least three percentage points, they will be unable to start recovering economically. 
• Labor Woes Are On The Rise: 61% of SMB employers they're paying employees more now than 12 months ago to attract/retain them, with 11% adding that their labor costs are over 25% higher than they were this time last year. (That 61% figure increased by seven percentage points from just 54% in January).
• Cash Crisis: Cash reserves are now a concern again, as the chart below demonstrates. Some 34% of SMB owners only have one month or less cash on hand. When business owners run out of cash, that can mean the end of the business, so this figure is quite significant.

What Business Owners Tell Us: In Their Own Words

Before we look more closely at additional statistics around economic forces and rent delinquency, several of these direct quotes from poll participants depict the struggles they're facing right now.

"2024 so far has been horrible, but I'm hoping 2025 will be better."

"I've just experienced the slowest first quarter in a decade."

"Couldn't pay rent when it went up, due to slow sales. Moving to a lower-rent building."

"My rent went up 150%! Can't pay that. I'm closing my store soon, going entirely online."

"Still have not been able to  recover from my COVID-era losses. Trying to pivot."

"I'm shutting down after 26 years, due to trouble finding quality employees, as well as high taxes and escalating costs."

"This economy's really taking a toll on my business. Something needs to change to help small businesses. Forget about big businesses, they can take care of themselves."

"This year so far has been challenging -- depending on the week, we're up, we're down, or we're even with last year. It's all very unpredictable and hard to manage."

"We're making as much as last year, but working twice as hard to do it."

As we shift to look at the sectors and states most affected by rent delinquency, we'll see more evidence of the economic conditions facing U.S. small businesses today. 

Sector Snapshot: Restaurants Top List Of Delinquencies 

Looking at the following two charts, it’s apparent that restaurants are having major problems now with rent, as that industry leads many suffering from high delinquency rates. 

In fact, in April, 52% of independent restaurant owners reported that they couldn't pay rent in full and on time (up seven percentage points since March).  That's the highest rent delinquency rate in the restaurant sector since December 2022. 

Rent issues for restaurants were starting to stabilize and improve toward the end of last year. But in 2024, those delinquency rates have edged upwards each month.

Here's what is happening in other key industries:

• Science & technology companies, as well as beauty salons/barber shops and gyms, are right behind the restaurants.  More than half of small business owners in the science/tech sector (51%) couldn't cover rent, up 13 percentage points from March. In several cases, they point to the ongoing layoffs and struggles at larger tech companies as one source of their financial issues, as those behemoths are often the companies hiring them for projects. 
• Beauty salons now top the list for April, as well, after riding an economic roller coaster for the past year. Nearly half (49%) of salon owners said they couldn't cover rent in full. We're hoping this is just a blip, but we shall see in May. 
• 48% of gym owners said they couldn't afford to pay rent in full in April or March. 
• Musicians and artists saw an 8-percentage-point increase from 35% in March to 43% in April. Many report in the comments that fewer customers are throwing big events or parties, which means their opportunities to entertain are dwindling. They feel more consumers are cutting back on non-essential spending given inflation and still-high interest rates.
• Those in the automotive industry say it's been tougher this year, because their sales are down due to current interest rates, making buying or leasing a car more expensive. Their rent delinquency rates are up nine percentage points from March, landing at 36% in April. 
• However, fortunes have changed thanks to the Spring Housing Market among realtors, and construction companies. Only 36% of those in real estate couldn't pay April rent, down eight percentage points from 44% in March.
• The drop in the delinquency rate for construction firms was even more pronounced as only 34% couldn't pay April rent, down 12 percentage points from 46% in March.
• Likewise, 34% of retailers couldn't pay April rent, down 14 percentage points from March. Those in the transportation sector also saw a major drop in rent delinquency -- down to 28% from 45%. Let's see if these promising trends continue in May and June.

Rent Problems Rise For Some States & Fall For Others

There were some substantial swings in small business rent delinquency among a variety of states. 

However, one stands out and that's Texas, which logged a record high for delinquency this month. At 52%, this is the highest delinquency rate for Texan SMB owners in over three years. March 2021 was the last time that 52% of Texas-based small business owners couldn't pay their rent in full and on time.

Beyond Texas, other states in the Top 10 facing rent difficulties are:

• Massachusetts at 47%, down two percentage points since March.  
• California at 46%, up 10 percentage points.
• Maryland at 42%, up  two percentage points. 
• New York & Washington State, tied at 39% -- up four percentage points for NY, and 12 for WA.  
  
• Florida at 37%, down eight percentage points. 
  
• Michigan and Pennsylvania, tied at 33% -- down 16 percentage points for MI, and down 10 percentage points for PA. 
  
• Arizona, New Jersey, and Virginia tied at 30% -- down six percentage points for AZ, three for NJ, and 15 for VA. 

For the first time since January, Illinois near the bottom of the chart, with a small business rent delinquency rate of just 29%, down two percentage points from 31% in March. Ohio is tied at 29%. 

And, among the key states we examine every month, the one with the lowest delinquency rate nationwide is Colorado at just 26%, which is great news for the small business owners in that state. Let's hope they can keep their rent delinquency rate relatively low in the coming months. 

To see more detailed findings from Alignable's April Small Business Rent Report covering other industries, states, or demographic groups, please contact me at chuck@alignable.com. There's a lot more of this story to tell. 

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

About The Alignable Research Center

Alignable is the largest online referral network for small businesses with 9 million+ members across North America.

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.