It’s springtime for entrepreneurs; time to cultivate business

Inflation. Continued supply chain disruptions. War in Ukraine. Yet another Covid variant. There’s never a shortage of bad news, is there? But if you’re looking for something on which to pin some real hope, consider this economic silver lining: In the last two years, there’s been a significant jump in the number of new business applications. According to the U.S. Census Bureau, in 2021, a record 5.4 million applications were filed to form new businesses.

This surge, while needing time to fully realize its potential, suggests there is a groundswell of entrepreneurial interest in the United States, say researchers at the Economic Innovation Group, a Washington, D.C.-based public policy research organization. In contrast to the Great Recession, which wiped out a great deal of the nation’s wealth, the government’s response to the Covid-19 recession may have “helped support existing small businesses and encourage their formation during this latest economic upheaval.” 

The rise in business applications is strongest in the Southeast, but growth in new business applications was more than respectable in the BankBeat readership area: Indiana (+44.1%), Illinois (+38.5%), Iowa (+30.0%), Michigan (+44.4%), Minnesota (+34.0%), Montana (+35.3%), Nebraska (+18.6%), North Dakota (+21.3%), South Dakota (+32.3%), Wisconsin (+36.3%) and Wyoming (+74.3%). (Explosive growth in Wyoming is attributed to the state’s favorable tax status.)

Data shows 2021 applications to form businesses with employees grew most strongly (since 2019) in the same sectors that were upended during the pandemic: Transportation and warehousing (+71%), hospitality/restaurants (+67%), and retail (+48%).  The National Bureau of Economic Research says there’s a high correlation between the number of applications filed and true business formation months afterward. That spells opportunity for you.

The founders of EntreBank are committing themselves to being the bank of choice for entrepreneurs, even baking that commitment into their name. They plan to make good on this promise by fully utilizing the guaranteed lending programs offered by the U.S. Small Business Administration. At least four of the 14 people working at the bank on opening day have extensive SBA experience. As its volume of SBA loans increases, the bank plans to add an SBA specialist, a go-to person to package SBA loans and work through the eligibility questions.

The SBA reports that, for start-ups, nearly 75 percent of funding comes from an entrepreneur’s personal savings. That’s as it should be. Why would anyone invest in a business that the owner hasn’t also invested in, and heavily? The second greatest source for startup funding, at 19 percent, comes from bank loans. There are fintechs looking to take this slice of the business — which is substantial — away from banks.

We’ve heard bankers complain that until they can get momentum on SBA lending, and thereby gain proficiency with the process, these loans are too challenging. But someone’s doing them well. The SBA approved 61,532 loans valued at $44.8 billion in FY2021 from the 7(a) and 504 loan programs alone. And with all this entrepreneurial optimism being reported, that pie could get a lot bigger.