Small Business Boom in U.S. Might Fizzle Out

Small business creation boomed in the United States during the pandemic, but some financial experts are wondering how long this surge can go on before a crash.

Small businesses in America are considered by many to be the backbone of the economy. Roughly two-thirds of new jobs are created by small businesses, and businesses with under 50 employees account for 44% of economic activity in America.

Applications for new businesses peaked last year, but data on filings is still being collected. This burst of small business activity might be a turning point for the U.S. economy, as many people want to be their own bosses in response to the life-changing effects of the COVID-19 pandemic.

However, some financial experts believe this effect will fade as the economy returns to a new normal, and that there will be a decline in new business applications in the long term, as the U.S. is faced with an aging workforce and high property prices and cost of living due to inflation.

"It was extremely surprising," Kenan Fikri, Director of Research at the Economic Innovation Group, told BBC News. "Now, things can go two ways. Do we revert to the pre-pandemic state of affairs where markets remain very concentrated, and it's hard to get loans? Or have we experienced a step change in the background entrepreneurial energy in the American economy?"

In the U.K., Fikri says, furlough support or unemployment support has helped those who have been laid off pursue dreams of founding start-ups.

Fikri notes that one of the most important lessons to learn there is that financial stability can allow people the freedom to become entrepreneurs. With money coming in, they feel confident that they can still pay bills while experimenting with their careers. But this is not a permanent situation. Unemployment checks come and go, and soon, business owners may lose the financial cushions they acquired during the pandemic.