January 18, 2023
C-Suite Wednesday – Record Numbers of Business Startups During the Pandemic
“One surprising phenomenon that has come out of COVID-19 has been the recent rise in business applications measured by the Census Bureau’s Business Formation Statistics (BFS). As of September 2022, monthly business applications have exceeded pre-pandemic highs in every month since June 2020,” reads a report from the SBA Office of Advocacy about business dynamics throughout the COVID-19 pandemic.
This is the data on business application growth:
• In July 2020, monthly business applications reached 552,748, almost 80% more than the previous record of 309,607 set in December 2019.
• The average number of monthly business applications during the pandemic has been 435,249.
• Applicants that are likely to become employers increased to an average of 142,328 applications per month in June 2020.
• Applications for businesses where the applicant is likely to become an employer peaked in July 2020 at 176,065, a 25% increase from the pre-pandemic high.
• The highest quarterly business birth rate prior to the pandemic was 3.7%, but in the last three quarters of 2021, the birth rate exceeded 4% each quarter.
• From October to December 2021, the business birth rate reached a high of 4.3%.
• The retail sector was the biggest driver of business application growth. The number of applications increase from almost 525,000 in 2019 to more than 983,000 in 2021.
• The total number of business applications in the transportation and warehousing sector increased by 100.7% from 2019 to 2021.
• Accommodation and food services had a 64.2% growth in business applications.
This rise in business applications could be attributed to entrepreneurs taking advantage of sectors growing due to pandemic-driven changes. The Office of Advocacy also mentions that stimulus payments and the Paycheck Protection Program could have had an impact on the increase in business applications. Another possible explanation for business application growth is the structural changes made to U.S. markets. Demand shifted towards an online economy which gave “a rare advantage to new and small businesses that were less rigid.”
“[Findings] suggest a resilient and adaptive small business economy that may have softened the economic blow of COVID-19, helped the economy recover, and even helped markets innovate when consumer and worker preferences changed.”