Home Small business financing Why small businesses could become the biggest winners from the pandemic

Why small businesses could become the biggest winners from the pandemic

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One of the most unexpected winners of the pandemic may well turn out to be new small businesses.

Why is this important: The number of entrepreneurs starting a business easily reached an all-time high in 2020, according to a new analysis by University of Maryland economist John Haltiwanger. This is a surprising result, given the severity of the crisis.

The big picture: It is now much easier than in 2008 to start a small business selling goods or services online.

  • By far the largest sector of the new businesses are “non-store retailers”, which account for one in three new businesses created during the pandemic. They’ve been helped every step of the way by ecommerce platforms like Shopify and Stripe, which weren’t even founded until 2009.
  • Be smart: Renting space on Instagram is much easier and can scale much faster than renting a storefront.

Physical companies have also been booming, but mainly in states with relatively low rents, such as Texas, Florida and Georgia. These states have seen many more new businesses form than high-rent California, New York, and New Jersey.

  • When the the Wall Street newspaper Recounted how businesses on a Chicago street are dealing with the pandemic, he found that of nearly 50 businesses on the Strip, five had closed permanently – while 10 new businesses had arrived.
  • Sectors seeing a lot of new openings include laundromats, trucking and, perhaps surprisingly, restaurants.

How it works: One of the biggest differences between the crises of 2008 and 2020 is that the former was associated with an extreme lack of money, while the latter saw an abundance of it.

  • In 2008, Americans lost billions of dollars in home equity, even as the stock market collapsed and banks stopped lending.
  • The pandemic, in contrast, trillions of dollars were spent on new government spending, much of which directly targeted small businesses in the form of paycheck protection program (P3) repayable loans that helped prevent many small businesses to close. There was also no financial crisis, thanks in large part to the Federal Reserve. As a result, US banks have always been financially sound and, in fact, desperately needed to find companies to lend money to.
  • A booming stock market has also helped provide the initial capital that some entrepreneurs need.

To note : “The increase in the number of applications for companies that are likely to employ employers is arguably not due to the PPP program, but despite it,” writes Haltiwanger. After all, PPP money was only going to old companies, giving them a competitive advantage over anyone who wanted to start a new business after February 2020.

  • Government assistance was also often slow to arrive, implying that the real engine behind the creation of new businesses was not government, but simply the underlying wealth and hope of individual Americans.

Yes, but: There is no hard data on the number of small businesses closed during the recession. A recent Fed article, however, suggests that about 130,000 businesses went out of business in the first year of the pandemic – up between a quarter and a third from normal levels, and well below that. that many economists originally feared.

The bottom line: If the Fed’s number is correct, the total number of small businesses may have increased, not decreased, during the pandemic. Either way, what is certain is that Americans have launched small businesses at an unprecedented rate.


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