Newpoint sees 35% jump in small business bankruptcies as defaults speed up

Newpoint Advisors says small business bankruptcy filings rose 35% year over year, with construction flashing the earliest warning signs and post-COVID defaults moving faster across nearly every industry. The firm says the trend leaves lower middle market companies and lenders with less time to react before a filing or charge-off.

Why it matters: - Newpoint’s data point to faster financial deterioration across the lower middle market, which can leave businesses with less runway to refinance, restructure or cut costs. - The firm says the pattern is broad, not isolated, raising risk for lenders, owners and advisors heading into the second half of 2026.

What happened: - Newpoint Advisors Corporation released new findings from its Lower Middle Market Business Distress Index showing a 35% increase in small business bankruptcy filings compared with the same period last year. - Voluntary Chapter 11 filings in the $1 million to $10 million liabilities range rose 93% from 2024 to 2025, from 934 cases to 1,809 cases. - Filings through June 30, 2026 totaled 1,248, putting 2026 on pace to exceed 2025. - Construction emerged as one of the earliest and most pronounced distress indicators in the current cycle. - Newpoint also flagged retail trade, manufacturing, transportation and warehousing, and health care as industries with elevated bankruptcy and default risk entering the second half of 2026.

The details: - SBA loan performance data showed construction loans originated after COVID are charging off in an average of 36.7 months, down from 57.2 months pre-COVID. - That represents a 35.9% acceleration in the time to charge-off for construction loans. - Across 20 industry groups, Newpoint found the average time to SBA 7(a) loan charge-off has fallen 33.1% since COVID, from 59.4 months pre-COVID to 39.8 months post-COVID. - Manufacturing, retail trade, real estate and rental and leasing, and administrative and support services each showed charge-off timelines compressed by 30% or more. - The Federal Reserve’s latest Senior Loan Officer Opinion Survey showed 6.6% of banks on net still tightening commercial and industrial lending standards for small firms, down from roughly 8% in Q2 2025. - Newpoint’s review of SBA 7(a) originations above $1 million from December 2009 through March 2026 found $203.1 billion in total loan volume. - Of that total, $15.5 billion, or 7.6%, was classified as problem loans. - Loans originated in 2024 and 2025 had already produced more than $1.5 billion in problem loans as of March 31, 2026.

Between the lines: - Newpoint’s message is that the usual gap between early stress and a formal default has narrowed sharply since COVID. - That compressed timeline suggests owners may no longer have the same cushion to absorb episodic cost shocks, while lenders may need to identify problems earlier in the credit cycle. - The breadth of the trend matters as much as the size of the increase, because distress is showing up across multiple sectors at the same time.

What’s next: - Newpoint expects more filings if current trends in charge-offs and bankruptcy cases continue through the rest of 2026. - The firm says business owners and lenders need to plan for a much shorter window between the first sign of stress and a potential default. - Review the report in full and previous reports on Newpoint’s website.

The bottom line: - Small business distress is rising, and it is moving faster than it did before COVID.