As rental prices rise alongside the broader cost of living, 37% of US small to medium-sized business (SMB) owners weren't able to pay rent in full and on time this May.
Rent delinquency rates were highest in Illinois and New York, and 12% more minority business owners reported feeling the crunch compared to other demographics.
The longstanding impact of the pandemic on consumer demand and surging inflation rates are placing climate pressure on all businesses, but as this research highlights, smaller firms are feeling the weight more than most.
As Rent Increases, Business Owners Are Struggling to Keep Up
Paying rent consistently ranks as a top concern for SMB owners, and new research from Alignable suggests these worries may well be valid.
After surveying 4,424 randomly selected US business owners, the small business referral network found that over a third (37%) of SMBs weren't able to cover their full amount of rent this May.
Alignable's report also found that rent prices are climbing, with 54% of respondents paying more now than they did six months ago (up 7% from Jan 2023) and 14% saying their rent is one-fifth higher than it was last December.
But with circumstances varying wildly throughout the US, businesses from certain states have been struggling financially much more than others.
For example, Illinois reported the highest number of rent delinquencies, with 52% of SMB owners in the state failing to pay dues on time last month, closely followed by 48% in New York, and 47% in Minnesota.
Despite being the largest economy in the country, the sunshine state also reported falling on tough times, with 41% of Californian entrepreneurs missing rent deadlines, a 9% rise from April.
On the other hand, only 7% of Arizonan small business owners struggled to pay rent in May — making it the most financially viable state to run a business in the US.
Minorities Have Been Disproportionately Affected
Unfortunately, discrepancies in rent delinquency rates aren't just geographical. Alignable's research also highlighted stark differences between the reality of minority business owners compared to other demographics.
Over half (57%) of minority SMB owners weren't able to make payments on time in May, compared to the average rate of 37%. When quizzed about their challenges, the demographic cites greater issues with rising interest rates and a shortage of cash reserves.
These findings shine a light on the disproportionate financial barriers faced by minority business owners. In 2021, more Asian, Black, and Hispanic-owned businesses described their financial situation as “poor,” compared to their white contemporaries.
While the reasons behind this imbalance are nuanced, unequal access to funding and poor credit availability continue to be a more salient issue for minority business owners, with Fed research revealing that 30% of Black SMB owners struggle to access credit, compared to 12% of white-owned businesses.
Small Business Brace Themselves for a Bumpy 2023
Exorbitant interest rates spare no one. Some of the biggest names in tech have been bucking under the pressure recently, with Meta stripping back its workforce by 12,000 and Google axing its famous employee perks to scale back costs.
“The revenues small business owners are bringing in are dropping, as rents are rising, creating intensifying financial pressure, exacerbated by other economic challenges.” – Alignable report
However, as inflation rates jump higher month after month, and consumers are yet to return to pre-pandemic levels of spending, small and minority-owned businesses with smaller cash reserves will always feel the heat the most.
As the business world braces for a looming recession, anxieties around paying rent in time aren't likely to dissipate in the coming months. However, by trimming costs where possible, and replacing pricey software with free or cost-effective tools, business owners are able to lighten their load ever so slightly moving forwards.