In California, Small Businesses Hit By 'Perfect Storm'

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Small businesses have been hard-hit in this economy — nowhere more so than in California. Steve Byland/iStockphoto.com hide caption

itoggle caption Steve Byland/iStockphoto.com
Closed Sign

Small businesses have been hard-hit in this economy — nowhere more so than in California.

Steve Byland/iStockphoto.com

The only thing you can see in the window of an empty storefront is Keanyn Gray's reflection. He's wearing a red jacket, his hands are in his pockets, and he's staring into the vacant space.

"We pretty much gutted it," Gray says. "There's not much left of it."

All that remains of the Edible Arrangements franchise he and his wife, Estella, opened in the spring of 2008 is the faint imprint of the sign above the blue canvas awning.

No matter where you live, chances are this sight is increasingly common: an empty store window with a "for lease" sign in the corner. Small businesses have been hard-hit in this economy, nowhere more so than in California. According to the credit analysis firm Equifax, small business bankruptcies soared 81 percent in the state last year. That's nearly double the national average.

Promising Beginning, Painful End

The couple had dreamed about owning their own business for years, Estella says. The first day of business, she remembers being nervous and excited.

"We were determined. 'We are going to excel at this' — and we did," Estella says. "We did pretty good. We fought tooth and nail for a long time, trying to keep the doors open with this attitude.

Their store was located in a new strip mall in the once-booming high desert city of Palmdale, just north of Los Angeles. But when the housing market collapsed, people started pinching pennies, and fancy fruit arrangements — like what the Grays were selling — soon became a luxury.

"We pretty much cleaned out the savings, everything in order to pay payroll and keep people paid and try to continue on," Keanyn says. "We tried our best, and now it's just ... we're down to nothing."

A Common Trend

They've begun proceedings to file for Chapter 7 bankruptcy protection for their business as well as for their personal finances. They're not alone: Close to 19,000 California small businesses filed for bankruptcy during a 12-month period that ended in September last year. That's nearly two times the rate of 2008.

"This is by far the busiest we've been in the last 12 years, and there's no end in sight right now," says Erik Clark, a bankruptcy lawyer with the Southern California firm Borowitz and Clark.

Clark says tight credit, falling home prices and high unemployment have contributed to what he calls a perfect storm for small business bankruptcies in the state. And people like the Grays, he says, are typical of those coming into his office.

"Obviously, they are entrepreneurial in spirit," Clark says. "Most of their life savings in a lot of these cases have been poured into these businesses ... Their entire sense of self is tied up in the success of their business."

Trying To Recover

Keanyn still has his real estate license, but given those prospects, he's now looking for other work.

"I need to catch up," he says. "I'm so far behind. I need to go get a Walmart job or something just to bring some extra money into the home."

During a reporter's recent visit, moving boxes were stacked in various corners of the home they purchased five years ago. The five-bedroom house is in foreclosure, and the family of six and their bulldog named Elvis are moving into a rental home about 10 minutes away. It's hard to even ask what's next.

"You really can't make any plans. You can't think about what you're going to do tomorrow when you're just trying to get through today," Estella says.

On this day, they had a yard sale. The next thing is the move. Sometime in the next couple of months, they will need to attend two administrative hearings in the U.S. Bankruptcy Court of California. And then, they will try to rebuild their lives.

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