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Report: Small businesses are failing at higher rates in their first year

A closeup of a sign that reads "closed" hanging from a chain in a window.
Jenny Kane
Associated Press
A closed sign hangs from an empty storefront on Tuesday, May 14, 2024, in Portland, Ore. A new Lending Tree report says that 1 in 4 small businesses fail within their first year.

Small businesses are often referred to as the “heart of America.” But small businesses today are failing at increasingly high rates, according to a new report by LendingTree.

The good news is there are over 33 million small businesses across the country. The bad news? Almost 1 in 4 businesses fail within the first year.

Data from the Bureau of Labor Statistics looked at the status of businesses in March 2023. In that time, 23.2% of businesses that opened on or after March 2022 failed within a year. For the same time period (March 2021 to March 2022), 20.8% of businesses failed, while from March 2020 to March 2021, 18.4% of business failed.

In LendingTree's analysis of the 2022-2023 data, Washington had the highest rate of businesses that failed after one year — 41%. Meanwhile, California had the lowest rate of failed businesses after one year — 18.5%.

Mountain West states all have first-year failure rates above the overall average of 23%. Idaho had the highest rate at 30.7%, third in the country.

Lending Tree spokesperson Matt Schulz said the risks for a small business remain high for years.

“And then after 10 years, you're looking at almost two-thirds of businesses that have failed by that point,” he said.

Schulz said while technology has made it easier to start a business, it also significantly more difficult to compete in the online marketplace.

“When you're talking about online, it can be simple and cheap to get started but it can be a real challenge to get yourself seen,” he said.

Despite the odds being “stacked against” a small business, Schulz said it can be very rewarding to be an entrepreneur. The key is to be prepared for the long haul.

This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio (KNPR) in Las Vegas, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Colorado and KANW in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.

Yvette Fernandez is the regional reporter for the Mountain West News Bureau. She joined Nevada Public Radio in September 2021.