The Los Angeles Times reports that over the twelve months that ended September 30 small business bankruptcies in California were up 81 percent over the previous twelve months. In all, 19,000 small businesses in California filed bankruptcy, compared to 10,500 the previous year. Nationally, small business bankruptcies were up 41 percent. The Sacramento area had one of the nation's highest rates of small-business bankruptcy filings.
The figures fail to account for small business owners who file for personal bankruptcy, a strategy that many bankruptcy attorneys recommend because it is simpler than filing for a business. Many small business owners personally guarantee debt and therefore cannot just close their business because they are personally liable for lingering debt. And, business owners often use personal finances to prop up their businesses. So, even if their business survives, their personal financial situation may become untenable.
Small business owners have been plagued not just by the downturn in the economy, but especially by the credit crunch. Banks have been reluctant to take on any risk, including providing loans to small businesses, even though they owe their continued existence in large part to bank bailouts funded by the taxpayer. More than just refusing to loan to vulnerable businesses, banks have rejected loan applications from businesses that have been operating healthily for years. Without funds to pay bills and employees, debt piles up and becomes unbearable.
The Obama administration is exploring providing stimulus funds aimed at small businesses. Potential plans include providing loans, temporarily suspending capital gains taxes on new investments in small-business stock, and tax incentives to encourage small businesses to hire more employees. The government must act quickly because every month more and more small businesses and businessmen flounder.
