CFO reported in a recent article that rising employment could deal the death blow to companies teetering on the edge of bankruptcy.

An excerpt of the piece can be found below:

“More employed people puts more money into circulation, which normally would bump up the inflation rate. A key defense against rising inflation is raising interest rates, and if the Federal Reserve Bank does that, as it’s expected to this year, companies that have been able to keep their heads above water because of their access to low-cost capital may meet their doom.

‘Unrealistic, unsustainable low interest rates have been the palliative for many sick companies,’ says Victor Sahn, a partner with Sulmeyer Kupetz, a law firm specializing in bankruptcy. ‘However, we are fast approaching the unveiling of higher rates. As employment increases, it puts a lot more pressure on [Fed chair] Janet Yellen to raise rates.’

Assuming that rates are hiked in June, as some observers expect, “You’ll see some more real estate bankruptcy filings for big properties like office buildings and apartment complexes starting in the middle of this year, and then going on from there in greater and greater numbers,” says Sahn.

Not only banks, but also many of the hedge funds and private equity funds that have increased their lending activities in recent years, have lately been fairly tolerant of defaults by borrowers and haven’t pursued their available remedies, Sahn explains. ‘But you can’t kick the can down the road forever,’ he says, ‘and I think that [leniency] is going to start coming to an end. What we’ve seen in the past five years certainly isn’t typical. Lenders usually aren’t that tolerant.’”

To view the full CFO article, click here.