Is Albert Einstein’s saying that “in the middle of difficulty lies opportunity” coming true in a post-pandemic world?
The Wall Street Journal reported over the weekend that new U.S. business formation is ramping up at its fastest pace in more than a decade, despite the pandemic.
In terms of headline numbers, the U.S. Census Bureau reported that applications for employee identification numbers (or EINs, that acronym with which you might be familiar via W-2 forms), have totaled more than 3.2 million year to date.
Often a marker of new businesses, those EIN issuances are up from only 2.7 million seen in the same period last year. Those big-picture numbers include individuals who have been tied to the gig economy or other workers who may have been hit by economic turbulence and have been laid off from previous positions.
Elsewhere, the Journal noted, new applications among firms that employ other workers were up by 1.1 million year to date through September. That’s up 12 percent over last year’s level – and leagues above the roughly 910,000 applications seen in 2011, the first year of significant growth following the Great Recession. Applications had plunged from more than 1.1 million in 2007 to below 900,000 in 2009 and 2010 (again as of mid-September of each year).
“This pandemic is actually inducing a surge in employer business startups that takes us back to the days before the decline in the Great Recession,” University of Maryland Economist John Haltiwanger told the Journal. But he also noted that half of all new employer businesses fail within five years.
Still, the pulse of business formations is quickening. The Census Bureau recently reported that as of the week ending Sept. 20, business applications were up 45.1 percent year over year to more than 97,000. We’d also note that the freelancer/gig economy has been gaining steam and is on track to represent about half of the U.S. talent pool by 2028.
By contrast, the St. Louis Federal Reserve has estimated that the Great Recession shaved the overall U.S. business count by about 5 percent. Drill down a bit and joint research between the Census Bureau and the Business Journals found that more than 170,000 smaller firms closed down between 2008 and 2010, leaving 6.8 million SMBs.
This time around, the movement toward small business formation has been spurred at least in part by a change in tax filing deadlines (in July this year versus April), according to the Journal. That staggered the increase in new business applications that is typically been seen in early spring.
“As states eased restrictions in May and June, entrepreneurs who had shelved plans during the extreme uncertainty began to move ahead,” the Journal reported.
However, the pace of new business applications might not give a sense of net new business formation. We don’t yet know the true impact of job losses seen among Main Street firms, and as PYMNTS has noted in recent studies, the struggles facing SMB owners are real and immediate.
PYMNTS surveys have found that as many as 37 percent of SMB owners are tapping personal funds to stay afloat, while 26 percent are using personal credit cards. Roughly 18 percent of firms surveyed also reported purposely delaying their supplier payments, while 20 percent are delaying payments to their employees.
But PYMNTS data also show some signs of optimism. A survey of 500 SMBs conducted at the pandemic’s half-year mark found that 54 percent of small business owners feel confident they’ll be able to make it through the crisis. That’s up from just 42 percent in March.