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Here’s why we’re seeing a rush to create new businesses

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Shot of a masked young woman hanging an open sign on the window of a cafe

There was a boom in applications for new businesses last year, per the Census Bureau. pixdeluxe via Getty Images

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When it comes to people starting new businesses, the U.S. has been in a decades-long slump. That is, until now.

There were over 4 million applications for businesses last year, according to the Census Bureau — the most since the government started keeping track. What’s behind that surge?

Most of us have reached some kind of breaking point during this pandemic. Kelly Clancy’s happened while teaching political science to college students from her basement in Nebraska.

“All of a sudden I felt water dripping down [from the ceiling], and I went upstairs and my daughter had dumped out her water cup and she was like, ‘I made a beach in our living room!'” Clancy said.

Teaching with three kids at home wasn’t working. So, Clancy moved her family to Texas where her parents live and started a business called Epilogue Editing and Consulting.

“I need to do something different because I can’t keep teaching like the world is normal when it’s not,” Clancy said.

Solo ventures like these are typical of the kind created during an economic downturn. But what explains the recent explosion? It’s because of things like low-interest rates and government stimulus, said Ben Jones, a professor of entrepreneurship at Northwestern University.

Plus, “there’s been a huge shift in the nature of demand in the economy,” he said. Demand to solve new problems with new goods and services.

A growing share of new business applications are for those that plan to hire workers, up more than 15% from 2019. Economic growth isn’t guaranteed, however.

Take restaurants. A lot of them are opening, but a lot of them have closed.

“If we end up basically having the same kind of businesses that we had before and we went through all this disruption, that’s pretty costly,” said John Haltiwanger, an economist at the University of Maryland.

And sadly for businesses, “what’s the most likely outcome for a startup? Actually, it’s not gonna survive,” Haltiwanger said.

It means it’ll be years before economists can sort through data on openings, closings and hirings to figure out the actual impact of all these new business applications.

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