Report: 44 Percent of U.S. Small Businesses Have Less than 3 Months' Worth of Cash

Report: 44 Percent of U.S. Small Businesses Have Less than 3 Months' Worth of Cash

September 9, 2021

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

Report: 44 Percent of U.S. Small Businesses Have Less than 3 Months' Worth of Cash​​​​​​

More than 18 months into the pandemic, bakery owner Letha Pugh is so low on cash that she's afraid to spend it on anything other than paying her employees. She's hardly alone: 44% of U.S. small businesses have less than three months of cash reserves, leaving them vulnerable to another shutdown due to COVID-19 or other financial emergencies, according to a Goldman Sachs survey of more than 1,100 small businesses, CBSNews.com reported. An even greater share — 51% — of Black-owned small businesses have less than three months' cash on hand, according to the same survey. While federal loan programs were crucial in keeping many small businesses afloat until COVID-19 restrictions were eased, some owners are concerned by the level of debt they've taken on. According to Goldman, 41% of small business owners and 55% of Black-owned businesses say the new debt could undermine their financial stability. Only 31% of small businesses say they could access funding if they needed additional capital. Even fewer Black-owned businesses — just 20% — report confidence in their ability to raise money.​​

Jobless Claims Plummet in Final Week of Federal Unemployment Aid​​​​​​

New applications for unemployment benefits dropped sharply last week just days before several pandemic jobless aid programs were set to expire, according to data released today by the Labor Department, The Hill reported. In the week ending Sept. 4, seasonally adjusted initial claims for unemployment insurance totaled 310,000, falling by 35,000 to the lowest level since March 14, 2020. Claims are now less than 100,000 above the 225,500 total seen in the final week before COVID-19 upended the global economy. On a non-seasonally adjusted basis, claims totaled 284,287, falling 8,005 from the previous week. Another 96,198 workers applied for Pandemic Unemployment Assistance (PUA) last week, a pandemic jobless aid program for gig workers and contractors. The new claims data comes shortly after roughly 9 million people lost their federal unemployment benefits Monday with the expiration of PUA, the $300 weekly supplement offered through Federal Pandemic Unemployment Compensation (FPUC), and an additional 53 weeks of benefits offered through Pandemic Emergency Unemployment Compensation (PEUC) for those whose state benefits ran out.​​

Analysis: How Asbestos Saved the Sackler Family from Bankruptcy​​​​​​

A long legal chapter in America’s opioid epidemic at last came to an end on September 1st when a federal judge in New York approved the bankruptcy plan of Purdue Pharma, which developed and manufactured OxyContin, a highly addictive painkiller, according to an analysis in The Economist. The deal settled thousands of lawsuits against the firm filed by states, localities, tribes and individuals. Purdue will be reorganized as a public-benefit company called Knoa Pharma, and its future profits will go toward alleviating the damage done by opioid addiction. Members of the Sackler family, who own Purdue, will relinquish control of the firm and contribute $4.5 billion to the settlement. But nine states and Washington, D.C., opposed the final deal, and some will appeal it. Their objections stem from a legal arrangement known as nondebtor releases, which shield parties associated with bankrupt companies from liability. It originated in the 1980s to protect insurers in bankruptcies arising from asbestos liability, and was codified by Congress as a protection in those cases. As a result of the settlement, the Sacklers (not all of whom were involved in the management of the company) will not relinquish most of their fortune, estimated at $11 billion. Richard Sackler, Purdue’s former president and chairman, last month told a court that neither he nor his family nor the company is responsible for America’s opioid crisis. The use of a nondebtor release has also been mooted in the reorganization of two groups that filed for bankruptcy amid child-abuse lawsuits, the Boy Scouts of America and USA Gymnastics. Some Democrats want to ban the arrangement, which they say has been expanded beyond its original intent. In July a group of senators, including Elizabeth Warren of Massachusetts, introduced a bill to close what they call a loophole used by “bad actors.” In the case of Purdue, the settlement does at least mean that money will be disbursed. But those who had hoped the family would have to pay more will be disappointed. The settlement will probably survive an appeal, bringing an unsatisfying legal resolution to a long chapter of a painful public-health crisis. (Subscription required.)​​

As 'Buy Now, Pay Later' Surges, a Third of U.S. Users Fall Behind on Payments​​​​​​

A third of U.S. consumers who used "buy now, pay later" (BNPL) services have fallen behind on one or more payments, and 72% of those said their credit score declined, a new study published by personal finance company Credit Karma showed, Reuters reported. The study, conducted by software firm Qualtrics, surveyed 1,044 adult consumers in the U.S. last month to measure their interest in BNPL and found that 44% had used these services before. The usage figure was slightly up from a similar survey conducted by Credit Karma for Reuters in December, while missed payments were down from 38%. The latest survey found that younger consumers were more likely to miss payments. More than half of Gen Z or millennial respondents — those born between the early 1980s and mid-to-late 1990s — said they had missed at least one payment. That compares with 22% of Gen X, who were born in the early 1960s to early 1980s, and 10% of Baby Boomers, those born between the mid-1940s and 1980. There has been a surge in usage of BNPL services, which allow consumers to easily split payments for purchases into installments. The boom in volumes by providers such as Klarna, Affirm Holdings, AfterPay Ltd. and PayPal Holdings Inc., has been driven in part by online shopping growth during the coronavirus pandemic. The explosive growth has led to more dealmaking and competition. Earlier this week, PayPal announced it would acquire Japanese BNPL firm Paidy, while last month rival Square Inc. agreed to acquire AfterPay.​​

Deals Spree Puts Banks on Track for Busiest-Ever Year​​​​​​

Companies worldwide embarked on an unprecedented deal spree this year, emerging from the depths of the pandemic looking to bulk up and address the vulnerabilities it exposed. Simultaneously, buyout firms and blank-check companies have been deploying hundreds of billions of dollars at a feverish pace, the Wall Street Journal reported. In the first eight months of 2021, companies have announced mergers and acquisitions worth more than $1.8 trillion in the U.S. and more than $3.6 trillion globally, according to data provider Dealogic. Both figures are the highest at this point in a year since at least 1995, when Dealogic started keeping records. Deals are on track to surpass their record set in 2015. The merger wave is minting money for Wall Street. At big banks and boutique advisory firms alike, deal-advisory revenue reached new heights in the first half of the year. Goldman Sachs Group Inc., the top deal-making shop on Wall Street, brought in more than $1 billion in fees in each of the three last quarters. It surpassed that level only once in the decade before the pandemic. Advisory revenue should continue to fuel banks through the rest of 2021. Bankers are paid when a deal closes, and many of the year’s biggest transactions are pending. It is one reason bank stocks have kept rising: Goldman is up 56% this year, the best performer in the Dow Jones Industrial Average. (Subscription required.)​​

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