- Bankruptcies spiked 17% in August, according to figures reported by Bloomberg.
- Company failures have now risen for 13 consecutive months.
- The data suggests businesses are struggling to cope with the Federal Reserve’s interest-rate rises.
More companies are filing for bankruptcy as the Federal Reserve’s interest-rate rises start to chip away at businesses’ balance sheets.
The number of failed firms jumped 17% between July and August, according to data from Ep iq Bankruptcy reported by Bloomberg.
Last month was the 13th in a row where the number of individual and commercial bankruptcies rose year-on-year, the outlet added.
The rising number of failures comes with the Fed signaling its close to concluding its most aggressive tightening cycle in decades.
Between March 2022 and July this year, the central bank lifted interest rates from near-zero to about 5.5% in a bid to crush inflation, which had been running close to four-decade highs but has started to cool rapidly in recent months.
When rates rise, it becomes more expensive for companies to borrow cash, increasing the risk that they have to seek court protection from their creditors by filing for bankruptcy.
Last week, Kevin O’Leary warned that the Fed’s war on soaring prices could cause economic chaos by fueling a rapid rise in the cost of capital for smaller businesses, which he defined as companies with between five and 500 employees.
“We have a crisis emerging,” the “Shark Tank” star said. “If you’re in the S&P 500, you have no trouble financing your business. You can’t say that about small business anymore. The cost of capital has gone through the roof.”
Retailer Bed Bath & Beyond, Silicon Valley Bank, and digital media brand Vice are among the US companies that have filed for Chapter 11 bankruptcy this year.
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