How Many Bankruptcies? Ripple Effect?
We have already seen a number of high profile bankruptcies just 30 days into COVID-19 travel and essential business restrictions. For many small businesses in the United States the COVID-19 restrictions do not mean depressed business as may have occurred in 2007-2008 financial crisis, it means complete loss of business. It is a mistake to believe that the COVID-19 pandemic is similar to the 2007-2008 financial crisis in terms of the government's ability to bail "us" out. It is many times worse.
Let's look back at the bankruptcies filed during the financial crisis. All told, there were 64,318 business bankruptcy filings in calendar year 2008, compared to 28,322 in calendar year 2007, according to figures provided by Jupiter eSources, LLC’s Automated Access to Court Electronic Records.
Conservatively, the number of bankruptcies related to the COVID-19 business restrictions could easily top 100,000 if not 200,000. Even if restrictions are reduced by mid-may, we estimate that over 100,000 small businesses will completely fail over the coming months - many of those resulting in bankruptcy. In addition, if you assume no stadium gatherings for the next twelve months as has been suggested, high number of stadiums in the United States will go bankrupt and have ripple effect on banks and debt investors throughout the world. Not to mention the impact the people who work in the those stadiums.
At some point, the government can't bail us out. It will have to let the natural forces of refinance, bankruptcy and dissolution take over.
The author, Kevin McDonnell, is an Adjunct Professor of Entrepreneurial Finance at Brandman University and has spent his life working in and with small to medium size businesses.