Undress4Success - Work From Home

Growing mushrooms at home has been promoted as a profitable home-based business. And it may be. But it turns out it’s bankruptcies that are mushrooming.

The troubles that started with sub-prime mortgages* (California homes lost to foreclosure in the first quarter reached an average of more than 500 foreclosures per day), have hit small businesses too. Over 5,000 businesses filed for bankruptcy in April alone, a 49% increase in commercial bankruptcies compared to last year. That’s more than in any month since the new bankruptcy laws took effect in 2005.

According to William Dunkelberg chief economist at the National Federation of Independent Businesses, and a former colleague of Kate’s, “Recessions always used to clean up the inefficient firms, and that’s what we’re seeing.”

Some of those businesses—sole proprietors running home-based businesses—are victims of tighter consumer credit. Bank loans are harder to come by so small business owner’s forced to use more costly credit cards and home equity lines of credit.

Dunkelberg, on the other hand, isn’t so sure it’s just tight credit. He thinks rising prices are the real culprit. And that’s backed up by a survey that shows inflation as business owner’s top concern at 12% in March compared with 4% a year ago. Only 2% of those surveyed listed financing and interest rates.

Either way, these are tough times for small businesses, and they’re likely to get rougher as this financial crises begins to eat into the credit card industry which will have a domino effect on other industries that depend on credit card purchases.

Save every penny you can kids, you’re gonna need it.

*Update 6/13/2008

More than 73,000 American families lost their homes to bank repossessions in May, up a staggering 158% from the same month a year before—the 29th straight month of year-over-year increases.

And the worst isn’t over because the full effect of no-doc or Alt-As loans (mostly loans issued without verification of income and assets) haven’t hit yet. Many of those mortgages had option ARMs, negative amortization loans that let borrowers make very small, minimum payments that didn’t even cover the interest they owe each month. Can you spell ‘lead balloon’?

Update 6/25/2008

In April credit card performance fell in four of five measures according to Moody’s. The charge-off rate, which measures credit-card account balances written off as uncollectable as an annualised percent of total loans outstanding, for example, rose to 6.27 percent, up 31 percent from 4.77 percent a year earlier—the sixteenth consecutive month of year-on-year increase and the seventh consecutive month of month-on-month increase, Moody’s said.

Moody’s also reported that the April delinquency rate, which measures the proportion of account balances for which a monthly payment is more than 30 days late as a percent of total balances, rose to 4.50 percent from 3.70 percent a year earlier. They  also reported that in April cardholders paid back, on average, 17.49 percent of their credit card debt, about 6.10 percent less than they did a year earlier when they paid back 18.63 percent.