A study released this week by financial services company Equifax shows small businesses in California are facing serious financial difficulties. The current economic climate and increase in both personal and business bankruptcies demonstrate the importance of asset protection to plan for a variety of circumstances.

Equifax determined that the four metropolitan areas with the greatest number of bankruptcies are all in California. Specifically, the study revealed that small businesses in Los Angeles had the most bankruptcies in the first nine months of 2010. The Riverside-San Bernardino area had almost 2,400 small business bankruptcies in the same time period, representing a 9.1 increase from the first nine months of 2009.

This is old news to many who own small businesses or work with small business owners, as sales have been declining for small business owners in the past two or three years. In the meantime, creditors are hounding business owners who are unable to pay their debts.

The dismal housing market could be partly to blame for small business owners' financial woes. Business owners often tap into home equity in order to fund their business. However, this is not longer an option for most people. Therefore, business owners are left with little ability to generate cash.

According to Reza Barazesh, senior vice president for Equifax, the overall business bankruptcy rate is starting to drop. However, he said the future of small businesses is less predictable and will depend on their ability to grow and thrive in a difficult economic climate.

In addition to making sure they have an asset protection plan in place, small business owners should take heart. The Small Business Administration said banks have recently started granting more business loans.

Source: The Press-Enterprise "Small business bankruptcies rising," Jack Katzanek, 1 December 2010