Rise In SMB Owners Suffering From Interest Rates, As Revenue & Rent Crises Remain At Record Highs

INTEREST RATE STRESS & REVENUE LOSS ARE UP | NATIONAL 3-YEAR RENT DELINQUENCY HIGH EXTENDS ANOTHER MONTH | BOSTON, MA -- July 12, 2024: For the third month in a row, many small business owners are shouldering mounting economic stress, even though the Feds say the economy shows some signs of a "soft landing."

The national small business rent delinquency rate remains at a three-year high of 46%. Revenue losses have inched up to a 2024 record high, and more business owners are struggling with persistently high interest rates. 

Beyond all of that, the negative effects of cumulative inflation are growing as the top concern among small businesses, regardless of reported inflation rate declines. 

Based on Alignable's June Revenue & Rent Report, published today, 46% of SMB owners couldn't cover June rent, matching May's figure, and marking the third consecutive month of the highest delinquency rates experienced in over three years. 

The last time the small business rent delinquency rate was worse dates back to March 2021, when it reached 49% amid the COVID crisis."

This latest data is based on poll responses from 3,690 randomly selected small business owners surveyed from 6/1/24 to 6/30/24, along with historic input from thousands of other SMB owners who've responded to Alignable polls. 

Alignable's Revenue & 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. 

Today's Growing Financial Struggle For Small Businesses

To put the gravity of this situation in its proper perspective, look at the chart below, which tracks just the past 16 months of  rent delinquency rates. 

As you can see, economic issues are putting ongoing pressure on already-stressed small business owners. That's especially true for the 56% who report recent rent spikes, as the payments required by their landlords are up from six months ago. 

And for many of the renters, there doesn't appear to be much, if any, relief in sight. Spring into early summer has been the worst period for a large percentage of small business owners in a long time. 

What's Happening Behind These Rent Numbers?

As we mentioned above, rent is just one of the major problems. Other broad challenges -- besides cumulative inflation -- are increased revenue losses and a greater number of small business owners feeling the crunch from still-high interest rates. 

Let's check in on the revenue situation. It was bad in May with 71% of those polled saying they're making less income monthly now than they did prior to COVID, over four years ago. 

But June's numbers are even a bit worse -- as now 72% say they've lost revenue compared to pre-COVID earnings. That means only 28% of the small businesses that were open prior to the pandemic have fully recovered. 

And the problems aren't confined to older businesses. Some 72% of those businesses that started after COVID struck are bringing in less money now than they did this time last year. 

The chart below shows the progression in revenue loss among small businesses, based on the responses to June's poll. 

So, June broke a record for 2024 in terms of revenue loss impacting the greatest number of small businesses, indicating a significant economic backslide from March, when just 64% were making less monthly than they did before the pandemic. 

Now, that figure is eight percentage points higher, demonstrating that an overall recovery from the COVID era and what followed is more elusive now than it's been in several months. 

And while that's a daunting realization, it's understandable considering the difficulty an increasing number of small business owners have experienced due to the still-high interest rates.

Another Record: 55% Are Hurt By Interest Rate Problems

Based on the chart below, the last three months started with an easing of the interest rate issues, only to be followed by increased problems that, in fact, surpassed the troubles experienced earlier in 2024.

Some 55% of small business owners say that current interest rates continue to hurt them -- squeezing 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 two percentage points from 53% in May and seven percentage points over 48% in April. 

Beyond that, small business owners aren't just impatient for the Federal Reserve to cut its interest rate -- 47% say the Feds must drop it at least three percentage points before they'll be able to start recovering economically. That figure is up one percentage point from May. 

Cumulative Inflation, Labor Costs, & More 

Beyond the problems already mentioned, there are a few more factors to dive into that are holding back small business growth. 

• Inflation -- Prices for many things -- including basics like groceries -- continue to be much higher than they were a year or two ago, regardless of a softening inflation rate. That's why 35% of small business owners polled in June said cumulative inflation remains their top concern. And that figure is only increasing -- as it was 33% in May. 
• Labor Costs Rise Yet Again: 79% of SMB employers say they're paying employees more now than last year (up nine percentage points from 70% in May and up 18 percentage points from 61% in April). Of that group, 16% add that their labor costs are over 25% higher (up five percentage points from April). 
• Cash Crisis Continues: Concerns over cash reserves are daunting, as 38% of SMB owners say they only have one month or less cash on hand, based on June's poll. When business owners run out of cash, that can mean the end of the business, so these findings should give us all pause.

Examining trends in various sectors and states will show us more dimensions of the challenges facing small businesses, as well as a few preliminary "wins" evident in the data. 

Automotive, Science/Tech & Manufacturing On The Hot Seat

Every month, we see some major swings looking at industry and state data, so we've added a column on our charts also noting averages over the past 14 months to provide a broader perspective.  

Looking at the following two charts, it’s apparent that five sectors are struggling the most right now: automotive, science/technology, manufacturing, real estate, and retail. 

In all of these cases, still-high interest rates for SMB owners renting commercial spaces right now are causing a lot of issues. 

And for those in the automotive and real estate sectors -- the high interest rates customers must tackle when buying a car, a house, or a commercial space -- are becoming cost-prohibitive for an increasing number of potential buyers. 

Those issues can affect small businesses in the automotive and real estate industries quite severely -- and we've seen many comments from car dealers and realtors complaining about interest rates. 

Our SMB owners in the automotive industry saw the biggest jump in rent delinquency -- a massive 21 percentage points month over month. In fact, June's 57% delinquency rate was so high, it broke a record spanning at least the past 14 months.  

Right behind the automotive sector, 52% in science and technology couldn't pay June's rent (up two percentage points from May), and 46% of small manufacturers were in the same situation. That represented the second highest month-over-month increase in delinquency -- up 16 percentage points. 

Based on comments posted by survey participants, many manufacturers say rising costs of supplies and labor are hurting them, while consumer spending is down making it harder for them to sell the goods they make. 

That's a dangerous combination that we should continue to examine in the coming months. Hopefully, this is more of a blip than a trend, but July's poll should shed some additional light on this issue. 

Some 44% of those in real estate and retail had trouble paying June rent. For realtors, that matches what was reported in May. 

For retailers, the 44% delinquency rate marked a drop of two percentage points from 46% in May. That said, 44% remains significant number when it comes to rent delinquency for an entire sector. 

For the retailers, in particular, rent spikes are forcing more of them to leave their brick and mortar stores and either shut down completely or go 100% online with their stores. 

Amid These Financial Crises, There Is Some Good News

Despite some major increases in industry-wide rent delinquency rates, there were quite a few wins looking at sector statistics. 

Based in part on some lower gas prices over the past month or two, those in transportation -- from trucking companies to Lyft drivers -- saw a 10-percentage-point decline in delinquency, landing at 40% in June. (Again, 40% is still high, but it's an improvement). 

For similar reasons -- lower gas prices -- those in the travel/lodging industry saw a major improvement, too -- a drop of 23 percentage points from May to June, landing at a rate of just 28% (from 51% in May). 

Looking at the states, we do see some similar swings, despite having the same very high national delinquency rate of 46% in both May and June. 

TX, FL, AZ, MA, MI, MD, NY & OH Lead The Pack 

Let's start with a quick look at this detailed chart.

Here are some key takeaways: 

• The Top 5 states with the highest small business delinquency rates in June are: 
  • Texas (58%)
  • Florida (54%)
  • Arizona (50%)
  • Massachusetts (42%) & Michigan (42%)
  • Maryland (38%), New York (38%), and Ohio (38%). 
• For the second consecutive month, Texas, Florida, New York, Massachusetts and Michigan are in the Top 5 states.
• Texas & Florida both broke year-long records for delinquency in June, as well, reaching 58% in Texas (up eight percentage points from May) and 54% in Florida (up seven percentage points in just one month).
• Small business owners in Maryland experienced the most substantial increase in rent delinquency across key states -- up 15 percentage points from May to June.  
• Of the Top 5, New York's SMB owners had the most dramatic improvement in their rent delinquency rate -- down from 56% in May to just 38% in June. 
• Overall, the states with the lowest small business rent delinquency rates in June are:
  • Washington State (33% down from 40%)
  • Illinois (30% down from 40%) and 
  • Pennsylvania (25%, down a dramatic 21 percentage points from 46% in May). 

To see more detailed findings from Alignable's June 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.