Inflation has nothing to do with American entrepreneurship, which, judging by the volume of new businesses being created, continues to see potential in the post-pandemic economy.
To better understand the post-COVID-19 outlook for entrepreneurship in the United States, altLINE analyzed data and reports from the National Bureau of Economic Research and the Census Bureau. Data shows that through July of this year, Americans are on pace to submit 54% more applications to start new businesses compared to the same period in 2019, before the pandemic began.
New business apps initially exploded at the start of the COVID-19 pandemic, when brick-and-mortar businesses were forced to close their doors in accordance with local social distancing mandates. Stores saw their business plummet and many were never able to reopen their doors, even as public health restrictions eased. The seismic shift in shopping habits has prompted many Americans to start new businesses at rates not seen since the Great Recession, when the American consumer was hit by one of the deepest recessions on record.
While the current economic situation perplexes economists who wonder whether a recession could occur in the future, continued business creation could ease some of the pain of the slowing economy.
Studies suggest that the growth of smaller businesses can contribute to the resilience of an economy. Young and small businesses, sometimes called “microbusinesses” reduce local unemployment rates in their communities and have been linked to increased household income, according to GoDaddy’s July 2021 Venture Forward report.
COVID-19 recession provides a boost
Advances in technology have made it easier for business owners to create and manage online storefronts and services. Until 2020, e-commerce platforms integrating new technologies to improve the shopping experience provided an essential foundation for new businesses to flourish. As Americans stayed home during the height of the pandemic, they shopped for everything from personal care to groceries online. Ecommerce Sales almost doubled in 2020, a 43% jump to a whopping $815 billion in annual retail sales. Thousands of stimulus checks also helped keep Americans afloat and spending. In addition to these factors, interest rates on loans to support new businesses and purchase real estate were at historic lows.
During the first year of the new business boom, fashion retailers accounted for the lion’s share of new small businesses, according to the GoDaddy Venture Forward report.
Today, these new business owners face a much more expensive economy. The costs of labor, gasoline, clothing, food and other essential business inputs have increased significantly since 2020.
New business class faces considerable headwinds
The typical new business goes through the most difficult time during its first few years of business. Historically, 4 out of 5 new businesses succeed beyond their first year, according to data from the Bureau of Labor Statistics. But the chances of survival decrease over the years of exploitation. Based on trends, only one in two businesses created in 2020 will likely survive beyond 2025.
Entrepreneurs looking to survive now face growing headwinds from rising interest rates, which have made borrowing more expensive for both consumers and small business owners.
For small businesses looking for venture financing, venture capital in the seed phase has stagnated as the venture capitalist ranks become increasingly wary of investing in early-stage companies. For those looking for loans, the cost of borrowing money is at an all-time high today. highest since 2001when the tech bubble burst, plunging the United States into recession.
Story editing by Ashleigh Graf. Editing by Kristen Wegrzyn.
This story originally appeared on altLINE and was produced and distributed in partnership with Stacker Studio.
© Stacker Media, LLC.
This story was originally published October 2, 2023, 6:30 a.m.
