New business applications reached a 15-year high in 2020, according to data from the US Census Bureau. Online retailers made up almost a quarter of all new business applications in 2020, nearly tripling in amount. But only 30% of new retailers were considered likely to succeed and create jobs. Other industries such as food service and health care had the highest rates of potential success at 99%.
Last month, there were almost 500,000 applications for new businesses[1]. Applications have increased over 70% since February 2020. After dropping for the first few months of the pandemic, applications rose in August 2020.
What types of new businesses are applying?
Of the 500,000 new business applications, about 10% were from a corporation, which the IRS designates as a business with shareholders. The Census Bureau considered the other 90% of new businesses to be a small business. The definition of a small business varies among government agencies and industries. The Census uses the IRS definition, which generally includes any business with less than $10 million in assets.
New business applications are also categorized by potential earnings and planned wages. About one-third of June applications were considered “high propensity.” High propensity means that the business is likely to have a payroll, according to the Bureau of Labor Statistics. Payroll is a sign the business is likely to succeed and create jobs.
In what sectors are these potential new businesses?
New business applications increased in every industry sector during the pandemic. Retail trade had the most new business applications, driven by online retailers. Online retail applications have increased since the early 2000s, but they’ve nearly tripled since the pandemic began. New retailers are 25% of all new business applications since February 2020, compared to about 14% pre-pandemic.
How do new business applications affect employment?
While retail had the largest amount of total business applications, about 30% of those were designated as “high propensity,” meaning they were likely to succeed and create new jobs. Ninety percent of all online retail businesses were non-employers, according to a 2018 Census Bureau report. Accommodations and food service had the largest amount of high propensity applications, with 99% designated as likely to succeed and create jobs. Food service also had the highest percentage of open jobs last month, according to the BLS job openings survey.
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[1] Applications are made to the IRS for an Employer Identification Number (EIN) on the SS-4 form. While EIN applications do not always lead to an applicant starting a business, the IRS provides application data to the Census Bureau as a measure of entrepreneurship.
