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Startup Surge: New Business Applications at Record Highs in 2021

Updated: Feb 3, 2022

By Michael Fiffik, Esquire

Americans’ entrepreneurial spirit is alive and well despite the continued COVID pandemic. Nearly 5.4 million new business applications were filed in 2021 according to data released this month by the U.S. Census Bureau. That’s an all-time record and a 23% increase over 2020, which was also a record-setting year 4.4 million new applications. This is great news for workers as well because small businesses have accounted for over 65% of net new job creation since 2000 according to the Small Business Administration’s Office of Advocacy. Thirty-two percent (32%) of the record-breaking business applications in 2021 are categorized as “high propensity” applications, which means they are associated with a high likelihood of transitioning into a business with payroll. Companies with fewer than 10 employees account for 78.4 percent of all companies with employees. Small business truly does drive our economy.

Pennsylvania Applications Way Up in 2021

Pennsylvania business applications were up 24% in 2021 over the record-breaking year of 2020. There were 158,000 applications in 2021 compared to 127,000 in the prior year. Philadelphia county led with an eye-popping 61% increase over 2020, followed by Allegheny, Montgomery and Delaware Counties. Nationally, northeastern states trailed only the western states in gains over 2020 formations. Activity was somewhat lower in the Midwest and South.

We also experienced a significant increase in business formation activity among Fiffik Law Group business clients. In 2021, we formed 175 new businesses. Most of these were limited liability companies. That’s a 25% increase over 140 formed in 2020, a year in which we experienced a surge over the prior year.

Industries highly affected by the pandemic showed the largest gains

The new business surge is broad-based and happening across almost every industry sector, as applications for new likely employer businesses in 2021 were up across virtually all major industry categories. The biggest gains were in the food service, retail and healthcare sectors. These sectors experienced extreme shocks to their normal operations throughout the pandemic. The jump in intent to form new businesses likely reflects a necessity to adapt in response to job losses during the downturn as well as an opportunity to fill new economic needs amid changing consumer preferences, supply chain issues, and novel circumstances brought on by the pandemic.

Why the Boom During a Pandemic?

Why would so many new businesses be formed during the uncertainty of a pandemic? Is this the best time for people to be taking risks? It seems paradoxical that people would choose the pandemic as a time to start a new business. There’s no one answer. From our experience with our own clients, we see a few common themes.

The first is simple necessity. Over the past two years, a number of people filing paperwork for new businesses lost their jobs in the pandemic and decided to become self-employed. Over 22 million people became suddenly unemployed or underemployed as a result of the pandemic. Starting a business is an aspirational dream for many but during the pandemic, it became an economic necessity to pay the bills and put food on the table. People laid off became free lancers, uber drivers or gig workers.

The second reason is availability of start-up capital. Stimulus payments, pandemic unemployment kickers, and the stock market surge created capital that was used to fund start-ups. Already established businesses received Paycheck Protection and other SBA loans and grants. They invested that money in diversifying and expanding their businesses. Even those who were still working had more time on their hands due to remote work and consequently could devote that time to pursue business opportunities. Many others walked away from stable careers, convinced there was no better time to chase their dreams.

Opportunity was a driver as well. The pandemic exposed the vulnerabilities of already weak or poorly managed businesses. It forced those businesses to close, creating opportunities for new entrepreneurs to fill the gaps with new ideas and ventures. Online shopping exploded, adding $800 billion to the online retail marketplace. Many stay-at-home workers used the time previously devoted to work travel or socializing to start up online stores on Etsy, eBay and Amazon while holding down their regular jobs and income. For example, the number of sellers on Etsy increased by over 60% from 2019 to 2020. These sites experienced increased numbers of sellers again in 2021.

Will the Business Surge Last?

It will take months to evaluate how many of these expressions of entrepreneurial intent reflected in the business formation statistics actually turn into new companies that go on to hire workers. Research shows there has historically been a high correlation between the number of applications and lasting business formation. If the past is any guide and a substantial number of these applications turn into real new companies, their survival and growth will help power the economic recovery.

The experienced business attorneys at Fiffik Law Group have launched and guided thousands of businesses.We can help you make informed decisions about your business to help achieve your goals and dreams. Contact us today for a free consult.


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