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Bankruptcy isn’t just a back-page story anymore, it’s becoming the postscript to the startup surge. The January 27th Experian Commercial Pulse Report reveals a sharp contrast in the small business economy: while business formation remains historically elevated, bankruptcy filings are climbing to levels not seen in a decade. The data points to a critical inflection point—where entrepreneurial growth meets growing financial fragility. Watch The Commercial Pulse Update A Two-Sided Story: Formation and Failure The numbers we see highlighted in the news show a business ecosystem in flux. In December 2025, 497,000 new businesses were launched, a slight dip from November but still 53% above pre-pandemic averages. Since July 2020, an average of 446,000 new businesses have formed each month, underscoring an entrepreneurial surge that has become a defining feature of the post-COVID economy. However, this wave of new businesses comes with significant exposure. Many are lean operations, often led by first-time founders with limited access to capital and minimal financial buffers. These structural vulnerabilities are reflected in rising failure rates. In Q3 2025, business bankruptcy filings hit 24,039—the highest quarterly total since 2016. While some of this activity reflects larger firms restructuring through Chapter 11, a growing share involves smaller, younger businesses taking advantage of Subchapter 5, a newer option tailored for small business reorganization. Understanding Bankruptcy Types: Chapter 7, 9, 11, 12, 13, 15 and Subchapter 5 To better interpret the data, it helps to understand the bankruptcy options available to businesses: Chapter 7 – Liquidation: This is the most straightforward and final form of bankruptcy. Businesses cease operations and a court-appointed trustee sells off assets to repay creditors. Chapter 9 - Municipal Bankruptcy: Exclusively municipalities ( i.e. cities, counties, school districts.) Municipality retains control. No liquidation allowed. No need for disclosure statements. Chapter 11 – Reorganization: This allows a business to continue operating while restructuring its debt under court supervision. Often used by larger or financially complex companies. Chapter 12 - Family Farmer & Fisherman Reorganization: Exclusively for agriculture and fishing operations. Lower cost compared to Chapter 11. Owners keep farm/fishing operation. No need for disclosure statements or creditor committees. Chapter 13 - Individual Reorganization: Primarily for individuals but sometimes used for sole proprietors. Establishes 3 to 5-year repayment plan. Debtor keeps assets and continues operations. Debt limits apply. Chapter 15 - Cross-Border Insolvency: For businesses with assets and creditors in multiple countries. Facilitates cooperation between U.S. courts and foreign courts. Helps protect U.S. assets during international restructuring Subchapter 5 (of Chapter 11): Introduced by the Small Business Reorganization Act of 2019, Subchapter 5 simplifies and lowers the cost of reorganization for small businesses with less than $3 million in debt. Key advantages of Subchapter 5 include: No creditor committee or disclosure statement required Faster court timelines and higher plan confirmation rates Owners can often retain equity Subchapter 5 filings have more than doubled since 2020 and now account for a growing share of all Chapter 11 activity. Who’s Filing—and Why It Matters The report highlights a shift in the types of businesses filing for bankruptcy. These firms are: Small – fewer than five employees Young – under 10 years in operation Low-revenue – earning under $1 million annually These groups now represent the majority of business bankruptcies, showing that financial fragility is highest among the newest and smallest entrants in the market. Early Warning Signs: Commercial Credit Behavior Experian’s commercial credit database reveals clear behavioral patterns among at-risk firms: Higher credit seeking activity: These businesses are 3–4 times more likely to apply for credit before filing. Elevated commercial credit balances: They carry significantly higher balances than non-filing peers. Signs of financial stress: Increased delinquencies and utilization often appear months before a bankruptcy event. This creates an opportunity for lenders to proactively monitor portfolios and identify risk earlier, especially among firms that fit the high-risk profile. What This Means for the Small Business Economy The data paints a complicated picture. New business creation remains strong, driven by structural changes and a resilient entrepreneurial spirit. But these new firms are operating in an increasingly challenging environment, facing inflation, tighter credit conditions, and weakening demand. Subchapter 5 is helping many small businesses stay afloat by making reorganization more accessible. However, rising filings among small and young firms signal that financial strain is becoming more common at the foundational level of the economy. For lenders and risk professionals, the takeaway is clear: track not just the volume of small business activity, but the quality and sustainability behind it. Credit signals remain a powerful early indicator of distress and can help institutions support their small business clients more strategically. Learn More ✔ Visit our Commercial Insights Hub for in-depth reports and expert analysis. ✔ Subscribe to our YouTube channel for regular updates on small business trends. ✔ Connect with your Experian account team to explore how data-driven insights can help your business grow. Download the Commercial Pulse Report Visit Commercial Insights Hub Related Posts

The independent workforce is booming, but traditional financial services have struggled to keep pace. On a recent episode of Experian Business Chat, Michael Zevallos, co-founder of Giggle Finance, shared how his FinTech is bridging this critical gap for gig workers and micro-small businesses. Watch Our Interview The Problem: A Broken System for Independent Workers With over 10 years of experience in online lending and FinTech, Michael witnessed firsthand how the financial system failed anyone outside traditional W2 employment or large commercial businesses. During his time at OnDeck, starting in 2011, he witnessed numerous independent contractors and micro-small businesses being completely shut out of credit markets. "It wasn't just about meeting underwriting guidelines," Michael explains. "Smaller deals just didn't generate enough profitability. There were too many hands in the cookie jar—underwriters, salespeople, loan brokers, loan closers—all trying to interact with these deals." The traditional system relies on predictable W2 paychecks and consistent business histories spanning five-plus years. But gig workers operate differently. An Uber driver might work 10 hours one week, 20 the next, and zero the week after. This variability, while reflecting the freedom of independent work, made them invisible to traditional lenders. A Market Opportunity Hiding in Plain Sight What started as a niche problem became impossible to ignore. In 2020, the independent workforce became the fastest-growing segment of the economy. Suddenly, tens of millions of Uber drivers, barbers, content creators, online sellers, and freelancers needed financial services that simply didn't exist for them. That's when Michael and his co-founders launched Giggle Finance. Flipping the Script on Risk Assessment Traditional credit markets look backward, reviewing historical output, past credit scores, and established track records. But as Michael points out, "It captures your past, but it doesn't capture your present or more importantly, your future." Giggle Finance partnered with Experian to develop a more nuanced approach to risk: Experian's Clear Credit Risk and Clear Inquiry go beyond traditional credit files to identify different patterns of behavior and risk signals that matter for independent workers. This allows them to go beyond a traditional credit report, predict risk more accurately, and approve the right customers. NeuralID Technology analyzes how customers interact with the application itself, detecting fraud while building confidence in legitimate applicants. The Experian SMB Marketplace connects Giggle with customers who genuinely care about and value their credit, allowing them to approve more applications with greater confidence. The result? Giggle can assess risk and approve applications in under 10 minutes, requiring just 90 days of cash flow activity to get started. "Consider a freelance marketer who could previously handle two or three clients. With AI tools for content creation and analytics, they can now manage five or six times that workload."Michael Zevallos, Co-Founder The AI Revolution in Independent Work The conversation took an interesting turn when discussing how AI is reshaping the gig economy. While most people think about AI's impact on large enterprises, Michael sees it transforming independent contractors in profound ways. "Gig workers aren't just drivers or delivery couriers anymore," he notes. "They're becoming creators, consultants, designers—more tech-savvy and capable than ever before." Consider a freelance marketer who could previously handle two or three clients. With AI tools for content creation and analytics, they can now manage five or six times that workload. Many solopreneurs are evolving into full-fledged agencies, keeping headcount low while scaling to dozens of customers. From Emergency Funding to Growth Capital This AI-enabled transformation has fundamentally shifted why customers seek financing. Historically, small business owners came to Giggle because of emergencies—they needed to make payroll or cover an unexpected expense. Now, increasingly, they're seeking growth capital. The Uber driver who becomes a limousine company owner. The logo designer who can now produce dozens of designs using AI tools. These entrepreneurs need funding to hire people, invest in equipment, and market their expanding businesses. "That structural shift is very exciting for both the customers and for us at Giggle," Michael says. Building Long-Term Relationships Giggle isn't just there for a one-time transaction. Some customers have been funded over 20 times across four years, with Giggle supporting them through various business evolutions. Uber drivers have become truckers. Others have launched limousine companies. The relationship grows as the business grows. Looking ahead, Giggle plans to expand its offerings, including a potential line of credit product for more mature businesses. The goal is to remain flexible and responsive to changing business needs at every stage. The Path Forward: Collaboration Michael sees tremendous opportunity for banks and FinTechs to work together serving the gig economy. Banks bring trust, established brands, and balance sheets. FinTechs like Giggle bring product innovation, technology, and user experience. "If you put those strengths together, you can build a financial system that truly serves gig workers, independent contractors, and micro-small businesses," he explains. Giggle's technology can underwrite customers in seconds using real-time income data and AI, while bank partnerships could provide credit at scale. A Market That's Only Getting Bigger When Giggle launched in 2020, there were approximately 30 million independent workers in the United States. Today, that number has more than doubled to 70 million. By 2030, Experian and Giggle believe the independent contractor workforce will surpass the traditional W2 economy. "Everybody's a small business. Whether it's a college student with an Etsy store, a professional with a side consulting practice, or a full-time independent contractor, the entrepreneurial spirit is becoming the norm rather than the exception."Ekaterina Gaidouk, VP of Marketing Getting Started For entrepreneurs and small business owners interested in learning more, Giggle Finance operates entirely online at www.gigglefinance.com. The application process takes less than 10 minutes, and approved customers can have funds in their bank account the same day—no human intervention required. In an age where the nature of work is rapidly evolving, Giggle Finance represents a new approach to financial services: one that recognizes independent workers not as risky outliers, but as the future of the American economy. 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