Small Businesses Show Resilience As Rent Delinquency Hits New Record High

REVENUE & RENT REPORT | BOSTON, MA -- October 15, 2024: Alignable’s September Revenue & Rent Report, released today, reveals that 48% of small businesses are struggling to pay rent, marking a three-year high. 

However, certain states and sectors have shown significant progress, offering hope amid economic challenges. Moreover, 57% of entrepreneurs anticipate some level of growth in Q4, with 30% feeling more optimistic than they did in Fall 2023.

Based on responses from 3,482 small business owners surveyed from Sept. 2 to Sept. 30, 2024, Alignable’s report highlights both opportunities and challenges facing today’s small business economy. As part of Alignable's efforts to advocate for and empower small business owners, these reports have amplified the views, successes, and needs of entrepreneurs since April 2020.

We will first explore the opportunities and then address the challenges, highlighting how consumers can help small businesses overcome these hurdles in the months ahead.

Encouraging Signs Amid Uncertainty 

While the national average rent delinquency rate hit a three-year high at 48% in September, up 7 percentage points from August, some states saw impressive gains, and certain sectors are showing some signs of potentially stabilizing. 

This snapshot highlights key positive developments in states where rent delinquency rates are below the national average. Small businesses in states highlighted in yellow have been most successful in combating economic challenges. 

• Texas SMB Owners Had Their Best Month All Year: Texas reported a rent delinquency rate of just 32% in September, the lowest it has been in over 12 months. A 17-point drop from August suggests many Texas-based businesses are adapting effectively to economic pressures.
• Washington State: Another Big Improvement: Meanwhile, small business owners here saw another major drop in rent problems from August to September – 14 percentage points, down to just 31% from 45% in August.
• Ohio & Virginia Tie For The Lowest Rent Delinquency Rates: These states posted strong performances with only 25% of businesses reporting rent delinquency — nearly half of the national average of 48%. 

Industries Making Moves: Reduced Rent Issues

Not only have key states shown some improvement, but a few industries have also demonstrated admirable resilience and the ability to bounce back from economic difficulties. These sectors are highlighted in yellow on this chart showing industries below the national rent delinquency average.

• Beauty Salons Are Looking Good: Of the industries with the lowest rent delinquency rates in September, beauty salons (35%) saw the most improvement, down five percentage points from 40% in August. This rate remains significant, but is 13 percentage points lower than the national average, and three points below the yearly average for beauty salons (38%). Moreover, the decline from July’s 52% to September’s 35% is nothing short of remarkable.
• Manufacturers & Travel/Lodging Businesses Are Among The Most Stable: Tied for the lowest delinquency rate in September, only 30% of small manufacturers and travel/lodging operations experienced rent problems. That’s 18 percentage points better than the national average. We’re hoping they improve upon this record as Q4 proceeds, especially considering expected surges in travel and product manufacturing leading up to key holidays. 

Additional Uplifting Trends

Beyond these state and sector-specific improvements, several broader positive trends are emerging across the small business landscape.

• Revenue Growth For Some – 25% of small business owners reported higher or similar revenues in September compared to the same time last year, showing that a number of businesses are finding ways to thrive even in a difficult economy.
• Side Hustles Make A Big Difference – At least 50% of small business owners are currently working a side job to pay for extra expenses incurred due to the cumulative effects of inflation. 
• The Feds’ 1/2-Point Rate Cut Is Step In The Right Direction – 12% of SMB owners said September’s rate cut will help them recover. And another 55% say they look forward to further rate cuts to give them relief. 
• Online Networking Is Driving Success – 42% of those polled generated at least half of their income from networking & word-of-mouth referrals. Find examples of successful small business networkers here.

Where Some Small Biz Owners Require More Help 

While the report highlights promising developments, it also underscores areas where small business owners need more support from legislators and other government officials, landlords, and everyday consumers. 

This chart outlines several key issues that small business advocates should continue to monitor closely.

Beyond the aforementioned rise in rent delinquency across the board, other developments are fueling that rise that should be addressed.  

• Rent Spikes: The cost of rent has increased for 57% of the small business renters compared to what they paid six months ago. Of that group, 19% are now required to pay over 20% more in rent. If landlords want to retain more of their small business tenants, creating special deals for them would go a long way. 
• Interest Rates: While the Feds have helped some small business owners through the September rate cut, the negative and cumulative effects of high interest rates continue to take a toll on many others. Some 71% of respondents said they are suffering from persistently high rates, a seven-percentage-point increase from 64% in August. The solution: the Feds need to keep cutting the rates until more small businesses reap the benefits. 
• Cash Crisis: Issues related to available cash have reached a year-long high. As the chart below shows, September set a record for the SMB cash crisis, with 43% of business owners reporting they have only one month or less of cash reserves — a jump of 14 percentage points from August.

When business owners run out of cash, that can mean the end of the business, so this figure is quite alarming. Our hope is that September’s figure is just a blip and that cash flow issues stabilize as Q4 continues, as it can be the busiest time of year for many industries. 

That hope extends directly to four industries where consumers – with the right guidance and dedication – can make a big difference for key small businesses over the next few months. 

Retail, Restaurants, Car Services & Dealers Need An Assist 

All of the sectors highlighted in pink need extra attention from consumers for the rest of Q4 and beyond. 

Transportation (58%) (including car services) and car dealers (57%), plus retailers (52%) & restaurateurs (43%) have some of the highest delinquency rates in September. 

But for all of these industries, ramped up consumer spending could help these small business owners recover and even thrive.  

For the first three, rent delinquency rates broke or tied records for the past year. For restaurants, there was a dip in rates from August to September, but 43% is still high — and restaurants are some of the most vulnerable small businesses. 

This is why it’s vital for consumers to do all of the following as often as possible:

• Shop Local – Forget about ordering on Amazon, and take an Uber, or an independent car service to your local Main Street and shop with local merchants. Then give those drivers a high rating and a great tip, if you can afford it. 
• Eat Local – Dine out at breakfast, lunch, or dinner as often as your budget allows, prioritizing independent, Mom & Pop restaurants. They will really appreciate your patronage. 
• Repair Your Car Or Get A New One – Small, independent dealerships have been struggling for a while, as cumulative inflation and still-high interest rates are affecting car loans and credit card balances for many consumers. But if you need to get that car fixed, do it now at the local repair shop. And if you get a big holiday bonus or the stock market smiles on you, go negotiate a good deal for a new car from an independent dealer. 

It’s more important than ever for consumers to help their local stores, restaurants, car dealers and car services. Because if spending trends don't shift back to Main Street & Mom & Pop operations soon, high rent delinquency rates, rent spikes, and cash flow problems could, sadly, force many locals to close their doors forever. No one wants that, so consumers need to act now. 

States With The Biggest Challenges

Shifting gears from industries to states, there are not a lot of surprises on this list, as many of these states have cities where the rents are among the highest in the country.

Let's look a little more closely at the states with the Top 5 highest rent delinquency rates for September, all of which exceeded their yearly averages.

• Arizona leads with a 52% rent delinquency rate, 12 percentage points above both its August rate and yearly average.
• California follows at 49%, a 13-percentage-point increase from August (36%) and 11 percentage points above its yearly average (38%). 
• Tied with California, 49% of small business renters in Massachusetts and Michigan couldn’t pay their rent on time, well above their yearly averages of 39% and 36%, respectively. 
• Pennsylvania comes next at 48%, its highest rate this year, up from 43% in August and 37% annually. 
• Florida and New York tie for fourth at 44%, slightly above their yearly averages.
• Illinois and North Carolina round out the Top 5 with a rent delinquency rate of 43%, up six points from August. Illinois’ annual average is 38%, five points lower than September’s number.  And North Carolina's is 34%, nine points lower than September.

For more detailed data on other states, industries, or demographics, please reach out to chuck@alignable.com. 

To review past poll results, go here or to the Alignable Research Center.

About Alignable & The Alignable Research Center

Alignable is the largest, AI-powered business networking platform for small business owners in the U.S. and Canada. With 9.2 million members across 35,000+ communities, Alignable is the network where business owners come together. Whether you’re connecting locally, meeting peers in your industry, or finding a catalyst who will introduce you to their network, Alignable is where businesses connect and change their business trajectory.

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.