California's Small Business Bankruptcies Increased by 81% in 2009

By the end of 2009, the media and government reports alike announced that key economic indicators looked good for a recession recovery. However, although some indicators were positive, not all demonstrated good news – especially in California where small business bankruptcies increased by about 81% as of the12 months ending September 30, 2009. Across America, the statistics were still disheartening, with Equifax reporting that national bankruptcies were up 44%.

The Gloomy Situation

Many small businesses in California were simply trying to wait out the economic crunch, hoping for a light at the end of the tunnel.

But the light never came.

Small business lending and lines of credit simply disappeared and dried up with banks fearing additional defaults, and consumers stopped spending except only for necessary items. Many of those small business owners tried to wade through the economic crunch by obtaining loans and lines of credit where they could find them. However, small business lending became tough with stricter personal guarantee or co-signer requirements.

Unfortunately, as of the end of Q3 2009, about 19,000 small businesses have filed for bankruptcy. This number is strictly based upon small business bankruptcies alone, and it does not account for the numerous individuals who filed for personal bankruptcy because their sole proprietorship business failed.

2,229 small businesses filed for bankruptcy protection in September, 2009, which was up from 1,503 in September, 2008. Many more small businesses are not included in these figures because bankruptcy attorneys consult their clients to file personal bankruptcies, which are easier than small businesses bankruptcies.

The Sunnier Future Ahead

Although 2009 was tough on small businesses, those who have managed to survive will find it easier to obtain low-interest loans with the 2009 economic stimulus plan in effect. More money will be guaranteed by the government for small business loans. In addition, the Obama administration has asked for the elimination of capital gains taxes on new investments in small business stock, as well as tax incentives for small businesses to hire new employees.

This news is encouraging, especially since California is experiencing the largest failure rate of small businesses. Hopefully, with the money coming from tax incentives and loan guarantees, California will soon see a reduction in small business failures and once again be on the road to economic recovery.

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