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40% Of SMBs Still Can't Pay Their Rent, Extending High Delinquency From September Into October
https://www.alignable.com/forum/q4s-off-to-a-rough-start-40-of-smbs-still-cant-pay-their-rent
October 31, 2023: While the federal government reported a surge in economic growth for the U.S. last week, that news doesn't hold true for many small business owners.
In fact, in October polling by Alignable, only 12% said their companies are experiencing significant growth this month.
Beyond that, Alignable’s October Rent Report, released today, shows that a whopping 40% of SMBs couldn't even pay their October rent in full and on time. This marks the second consecutive month of a 40% rent delinquency rate -- extending 2023's record high from September through October.
These findings are based on responses from 4,246 randomly selected small business owners surveyed from 10/1/23 to 10/30/23, as well as input from 44,000+ other respondents over the past year.
As the chart below shows, October's SMB rent delinquency rate is 10 percentage points higher than it was in January, reflecting cumulative economic struggles: increased rents, high interest rates, still-stifling inflation, rising labor costs, and revenues that have declined since this time last year.
Rent delinquency rates among small businesses during 2023 based on Alignable surveys
So, Why's Rent Delinquency At 40% For A 2nd Month?
Here’s the current list of problems contributing to two months' worth of the highest delinquency rate 2023 has seen so far:
Consumer Spending Declines On Main Street: Quarterly, we ask about customer spending habits at retailers. This month, 45% of independent Mom and Pop Shops said spending has been down over the last 30 days. Some said it was due to more people spending money online with big retailers like Amazon. This figure is quite high, especially considering that back in July, only 24% reported a drop in consumer spending -- 21 percentage points less severe than it is now.
Revenue Troubles: 42% are making half or less of the income they generated monthly prior to COVID.
For businesses that are less than three years old, this situation is even worse: 53% of this group reports making half or less of what they generated this time last year.
High Interest Rates: Over half of all SMB owners polled said the past 19 months of high interest rates have hurt their margins, reduced revenues, and put their expansion plans on hold, as they don't want to apply for loans.
Increased Rent Prices: 50% say they’re being charged more for rent now than they were six months ago, with 15% saying rent has increased by 20% or more.
At present, only 37% of pre-COVID businesses have recovered financially from the pandemic era, leaving 63% still striving to make up for time they lost due to COVID, inflationary pressures, and high interest rates.
There's a slight silver lining here, though, as the 37% figure is three percentage points higher than it was in September. But, with that said, a recovery rate of 37% after more than three and a half years is still very low and speaks volumes about the ongoing list of troubles small business owners face looking into the rest of 2023.
Tech, Manufacturing, Gyms, Beauty & Retail Struggle
Examining the rent delinquency landscape in terms of sectors, there's quite a negative shift occurring among some industries in October. Let's look at the charts below to see what's really happening.
Sectors most affected by rent delinquency include tech and retail
Details on sectors affected by rent delinquency in October
This is alarming for a few reasons:
The countless technology layoffs at larger companies over the past year appear to be affecting the small companies now, too, who are often dependent on the larger ones as clients.
Right now, 54% of science/technology small companies couldn't pay their October rent, up 10 percentage points from September and 16 percentage points since August. There are also some comments in the surveys of technology roles being reduced or replaced by ChatGPT and other AI, which can write software programs.
Gyms have been struggling now for a while and now 50% of them can't afford the rent, up 8 percentage points from September.
The biggest shift between October and September occurred among manufacturers, partially due to ongoing fluctuation in the price of gas and other inflationary issues. For quite some time, manufacturers were improving a lot in terms of their rent delinquency rates, but in October, they jumped 25 percentage points, doubling their rate, which is now 50%. This is also a record high for manufacturers in 2023. We hope this is just a blip, but we'll see in November.
Also due, in part, to fluctuating gas prices and costs of vehicles, 45% of transportation companies couldn't pay October rent in full and on time. That's up 6 percentage points from last month.
Sadly, 47% of salon owners couldn't cover October rent, after showing a lot of stability over the past few months. But that stability ended this month, as salons' rent delinquency rates jumped nine percentage points.
Though rates have dropped three percentage points in October, a high percentage of retailers are still having trouble paying the rent. Last month, it was 47%. This month, it's better, but is still over 40%, landing at 44%. This is worrisome, especially since Q4 is a "make it or break it" time for many Main Street merchants.
Looking more closely at the industries, there was some good news, in that a few others experienced lower delinquency rates in October, including restaurants, which dipped to 40% from 44% in September.
Travel/lodging dropped seven percentage points to 38% (from 45% last month), as did education, which is also at 38%, down from 43%.
When looking at rent delinquency from the vantage point of the states that are most affected, many surges can be seen between October and September, while a few states saw some dramatic, encouraging declines, too.
Rent Troubles Increase For IL, VA, TX, MA, FL, & CO
Looking at the states' charts, you can see how tumultuous the rent story has become this fall. Let's first talk about those with significant jumps in their delinquency rates. Here's the rundown:
Illinois leads the list once again. After having a better month in September, its delinquency rate has soared, once more, landing at 54% for October (up from 46% last month). In fact, the 54% figure is the highest rate IL-based SMBs have seen in 2023.
Virginia was in great shape last month, with a delinquency rate of just 19%. But Virginia-based small business owners have had a very rough month, at least in terms of rent. Now, 50% of them who took our poll say they couldn't cover rent (an increase of 31 percentage points).
Texas is third on the list, with an 11-percentage-point lift from 38% in September to 49% in October.
MA is next up at 48%, which marks the largest jump on the chart -- 32 percentage points from a low of just 16% in September.
Small businesses in Florida have also experienced two challenging months in terms of rent delinquency. Right now, 45% of SMBs there couldn't afford to pay, up nine percentage points from September and 15 percentage points from August.
Colorado's businesses regressed in October, hitting a new record high of 40%. That rent delinquency rate jumped 13 percentage points from September to October.
While we just covered states with some very high delinquency rates, there were also several more positive swings that have occurred in October. Though encouraging, we'll have to see how long those delinquency rates continue.
Here are the most remarkable:
New York -- After reaching a record rate of 55% last month, New York's small business owners now report a more stable number: just 29%. That's down 26 percentage points.
New Jersey -- New York's neighbor has an even more impressive story in October: only 20% of New Jersey's SMBs couldn't pay rent this month, a record low over at least the past 14 months, down 34 percentage points from a record high of 54%.
Michigan -- Similarly, Michigan's small business owners boast a rate of just 20%, down from 45% in September.
