PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

Small Business Credit, Covid, and Bankruptcy

Brian Riley by Brian Riley
May 24, 2021
in Analysts Coverage, Credit, Small Business
0
Small Business Credit, Covid, and Bankruptcy

Small Business Credit, Covid, and Bankruptcy

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

As credit metrics for loss and delinquency continue at record low rates, bankruptcy attorneys await a storm of filings by small businesses. Even though just about anyone who wants a vaccine can get one, many small businesses are slow to recover.

Inc. reports, “As the Pandemic Recedes, Small Businesses Face a New Plague: Debt Collectors.”

  • As relief efforts like the Paycheck Protection Program (PPP) wind down and state and federal protections such as eviction moratoriums begin to lapse, companies that may have been limping along or on edge could soon topple.
  • Or, as Bob Keach, head of Bernstein Shur’s business restructuring and insolvency practice, puts it: “Expect a total avalanche of bankruptcies soon.”
  • It sounds counterintuitive, but “filings tend to be at their highest during the early stage of the recovery,” says Keach.

Recent changes in the code streamline the bankruptcy process.

  • Early signs are pointing toward the surge that Keach predicts. Namely, the number of Subchapter V bankruptcy filings is rising.
  • Subchapter V–so named for the section of the U.S. Bankruptcy Code it inhabits–marks a serendipitous bankruptcy reform for small businesses that became law in February 2020, just ahead of the pandemic.
  • Authorized by the Small Business Reorganization Act of 2019 (SBRA), Subchapter V makes reorganizing or liquidating less costly and less time-intensive for small companies than filing for the traditional Chapter 11 reorg.
  • The number of these filings increased by 55 percent in February, 59 percent in March, and 112 percent in April 2021, over the same months in 2020, respectively. 

And, the Federal Reserve sees the same trend.

  • The central bank added that, as such, “insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.”

PPP Loans: they may have been created equally, but they do not all resolve consistently.

  • While some debts–like PPP loans that end up receiving forgiveness–won’t need to be repaid, forgiveness itself remains a big open question for millions of borrowers.
  • The SBA has helped underwrite more than 10 million PPP loans worth north of $780 billion since last April.
  • It’s likely that some of these loans won’t get forgiven, says Melissa Peña, chair of the bankruptcy and creditors’ rights group at Norris McLaughlin in Bridgewater, New Jersey. In that case, she adds, “to the extent that the PPP might not be forgiven, a company might need to discharge that debt.”

Once a consumer or business puts itself into bankruptcy, all collection efforts must cease.  Creditors must prepare for the financial impact, which will lead to near-immediate charge-off.

With the year almost half-way over, and many firms honing their forecasts for 2022, we suggest building in deterioration for both bankrupt and contractual credit losses.  And, take a look at the full text of the Consumer Bankruptcy Reform Act of 2020 is here.

Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Tags: BankruptciesCovid-19CreditPPPSmall Business
0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily

    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    faster payments

    Faster Payments Are Set to Revolutionize Modern Digital Payments

    January 26, 2023
    How AI can Help Manage Payments Risk in 2023

    How AI can Help Manage Payments Risk in 2023

    January 25, 2023
    cross-border payments

    How to Implement Effective and Innovative Cross-Border Payment Strategies

    January 24, 2023
    credit card experiences, digital payments, b2b payments

    Will Consumer-to-Business Payment Trends Drive B2B Global Growth in 2023?

    January 23, 2023
    Faster Payments Faster Identity Verification, connected car, payments

    2023 Predictions: Authentication, Digital Identity, and In-Car Payments

    January 20, 2023
    bank data

    Interconnectivity, Data Sharing, and Security Are Vital for Banks to Thrive

    January 19, 2023
    B2B Payments, cryptocurrency

    Crypto as a Practical Solution to B2B Payments

    January 18, 2023
    AR, accounts receivable

    Digitizing AR Would Address One of Executives’ Biggest Concerns About Economic Instability

    January 17, 2023

    • Advertise With Us
    • About Us
    • Terms of Use
    • Privacy Policy
    • Subscribe
    ADVERTISEMENT
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • News
    • Resources

    © 2022 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result

      Register to download the Brighterion eBook - The power of today’s market-ready AI to reduce transaction fraud