BusinessWeek Online reports a rise in business bankruptcies with more businesses filing for the month of April 2008 than any time since the 2005 change in bankruptcy laws. April 2008 averaged 263 commercial bankruptcy filings per day compared to April 2007 when the average daily commercial filings were 158.

Hedge funds and large banks experienced a huge financial crisis in 2007 when fool hardy sub-prime loans; some economists believe these troubles hit the small business community in 2008, but if these instruments passed on any affect to small businesses, it wasn’t from poor investments, but rather the inability to stay afloat when credit dried up.

Unfortunately, many businesses attempt survival on credit cards. In a credit crunch, interest rates on credit cards take a big bite on monthly cash flow. Banks, after the slaps faced with sub-prime mortgages, tightened their lending standards, making it difficult for small businesses to find additional working capital. It’s a warning to all businesses that conserving capital for a rainy day means survival in hard times; failure to do so means the probable demise of the business.

The number of failing businesses could easily be much larger than shown in the above statistics because businesses without creditors simply close down. More and more businesses also avoid court and the bankruptcy stigma by out-of-court settlements. The business owners simply meet with creditors and work out an agreed settlement. In both of these situations, businesses failed but weren’t reported in the Automated Access to Court Electronic Records (AACER) system reported on by BusinessWeek.

Many of the reported failed businesses may be those involved in residential building and residential real estate in states like Florida and California. With the huge profits realized in residential real estate in these states, building was at an all time high. Don’t expect things to even out for awhile in the residential market. The housing market isn’t expected to settle down for at least another year with some warnings of a housing market down trend expected for about 5 years.