Small Business Bankruptcies Jump 35% in First Half of 2026, New Report Finds

A new report released on July 8, 2026, by financial advisory firm Newpoint Advisors Corporation reveals a sharp 35% increase in small business bankruptcy filings through the first half of the year compared to the same period in 2025. The findings, part of the firm’s proprietary Lower Middle Market Business Distress Index, indicate that financial strain is not isolated to a few sectors but is spreading across nearly all industries as companies grapple with persistent economic pressures.

The data shows that voluntary Chapter 11 filings for businesses with liabilities between $1 million and $10 million grew by a staggering 93% from 2024 to 2025. The trend has accelerated into the current year, with 1,248 such filings recorded by June 30, 2026, putting the year on pace to significantly exceed the previous year’s total. “This 35% increase is a clear signal that lower middle market businesses are running out of runway,” said Ken Yager, President of Newpoint Advisors Corporation, in a statement accompanying the release. “Episodic cost shocks have caught up with a lot of otherwise viable companies.”

These statistics are alarming, but in our experience, they often represent the final stage of a long period of financial distress that could have been managed differently. Many business owners, particularly those who are experts in their trade but not in finance, misinterpret early warning signs like tightening cash flow as temporary hurdles rather than systemic problems. The reality is that the combination of exhausted pandemic-era relief funds, sustained high interest rates, and stubborn inflation in labor and materials has created an unforgiving economic environment. The runway that many businesses were counting on has disappeared, and navigating this landscape requires more than just operational skill; it demands rigorous financial foresight and strategic planning.

We have seen countless otherwise healthy companies falter because they lacked the tools to forecast cash flow accurately or model the impact of rising costs. This is precisely where proactive financial management, often through outsourced CFO services, can be the difference between restructuring and closing down. Having an objective, expert eye on the financials provides the early warnings needed to make crucial adjustments before options narrow to bankruptcy. For business owners feeling this pressure, the first step is a clear-eyed assessment of their financial position and strategic options. To understand how to build a more resilient financial foundation, contact C&S Finance Group LLC at csfinancegroup.com.

The Newpoint report identifies the construction industry as a key bellwether for this wave of distress. Analysis of Small Business Administration loan performance data shows that construction loans originated after the COVID-19 pandemic are charging off in an average of 36.7 months, a 35.9% acceleration from the pre-pandemic average of 57.2 months. This sector is listed among those with the most elevated risk of default and bankruptcy moving into the second half of 2026. Other industries facing significant financial pressure include retail trade, manufacturing, transportation and warehousing, and health care.

The findings from Newpoint align with broader economic data showing a consistent rise in business insolvencies. According to analytics provider Epiq AACER, filings under Subchapter V of Chapter 11—a provision designed for small businesses—jumped 67% in the first quarter of 2026 compared to the first quarter of 2025, rising from 499 to 833 cases. Total commercial Chapter 11 filings surged 37% during the same period. This trend continued into the spring, with commercial Chapter 11 filings in April 2026 increasing 42% year-over-year.

Experts point to a confluence of factors driving the surge. “Rising costs, tighter credit conditions, and ongoing geopolitical volatility continue to exert pressure on households and businesses already facing financial strain,” said Amy Quackenboss, executive director at the American Bankruptcy Institute. The end of pandemic relief programs, coupled with increased costs for labor, materials, and borrowing, has created a difficult operating environment. This pressure is compounded by signs of consumer weakness, as household debt approaches $18.8 trillion and delinquency rates climb.

For many small businesses, the path through financial distress may involve Subchapter V of Chapter 11 bankruptcy. This specialized process, available to businesses with $3,024,725 or less in debt, is designed to be a more streamlined and less expensive alternative to a traditional Chapter 11 reorganization. It allows owners to retain control of their business while developing a plan to repay creditors over time, offering a potential lifeline for viable companies to restructure their obligations and continue operating.

Looking ahead, analysts will be closely monitoring bankruptcy filing rates through the remainder of 2026 to determine if the trend will continue to accelerate. The financial performance of high-risk sectors like construction and consumer discretionary retail will serve as a critical indicator for the broader health of the small business economy. Future interest rate decisions by the Federal Reserve and the availability of commercial credit will also be pivotal in shaping the landscape for struggling companies.