The Impact of COVID-19 on Small Business Bankruptcies: What You Need to Know

Small businesses have been some of the most hard-hit organizations by the COVID-19 pandemic. With shuttered doors, reduced foot traffic and sales, and a general sense of consumer fear and uncertainty, many of these businesses have struggled to survive. Unfortunately, some of these struggles have led to bankruptcy, leaving many small business owners to wonder what to do next.

As governments closed and restricted operations across industries in an effort to slow the spread of COVID-19, many small businesses found themselves facing significant financial challenges. For instance, they may have found themselves unable to pay rent, utilities, and other bills, or they may have been required to change how they operate, leading to revenue declines. As these challenges persisted, and additional costs related to new health guidelines, many small businesses began to consider the option of bankruptcy.

However, small business owners need to understand that bankruptcy has implications that go beyond just closing the business and clearing its debts. For instance, small business owners may face challenges in obtaining credit, financing, or even finding new jobs after bankruptcy. That being said, here are some key things small business owners need to know about the impact of COVID-19 on small business bankruptcies:

1. Bankruptcy can be a viable option for small businesses that are struggling financially. While bankruptcy should not be the first option, it can provide a way for small businesses to restructure their debts and explore other options for survival.

2. The Small Business Reorganization Act (SBRA) was enacted into law in 2019 offering small businesses a streamlined way to restructure their debts and recover from financial challenges. This Act has been critical in mitigating the number of small businesses filing for bankruptcy during the COVID-19 pandemic.

3. Small businesses seeking to file for bankruptcy should work with an experienced bankruptcy attorney to ensure they understand the process, their options and the financial implications of bankruptcy.

4. Small businesses should assess their options and plan strategically to improve their chances of success post-bankruptcy. For instance, they may need to refine their business models, focus on improving customer service, or even consider pivoting to new products, services, or markets.

5. Finally, the COVID-19 pandemic has changed the business landscape significantly, and small business owners must adapt to these changes or risk being left behind. This might require pivoting to new business models, investing in technology, and exploiting new markets.

In conclusion, small businesses that are facing challenges during this COVID-19 pandemic need to understand their options carefully. While bankruptcy might be a viable option, small business owners should understand the process, implications and preparations that come with it. By doing so, they may be able to increase their chance of survival and rebounding when the pandemic subsides.