The Rollercoaster ofSmall Business Growth

by / ⠀Featured News / November 27, 2023
small business growth Rollercoaster

A recent report by the Census Bureau indicates that the growth in small business startups seen over the last three years may be losing momentum as 2024 approaches. The Monthly Business Formation Report showed that approximately 473,000 startup applications were submitted in October, with high-propensity applications experiencing a 3.3% decrease month-over-month, amounting to 154,200.

Slowing Small Business Growth: An Omen for 2024?

This decline could raise concerns for financial institutions such as banks and credit unions, as small businesses are vital to their operations and often depend on bank loans for financing. Moreover, a slowdown in small business growth could impact overall economic growth, as these enterprises play a significant role in job creation, innovation, and fostering competition. It is crucial for policymakers and industry leaders to identify potential obstacles and offer support to startups in order to maintain a healthy business landscape and sustain economic well-being.

Sustained Growth in 2023: A Testament to Entrepreneurial Resilience

Although high-propensity applications witnessed a decline in October, overall 2023 startup numbers remained positive with a total of 4.6 million applications, signifying a 7% increase over the initial ten months of 2022. High-propensity applications also increased by 7% through October, reaching 1.48 million.

This sustained growth demonstrates the resilience and adaptability of the entrepreneurial landscape, even amidst global economic uncertainties. Notably, the increase in high-propensity applications indicates a burgeoning confidence among prospective business owners, ultimately fostering an innovative and robust startup ecosystem.

Anticipated Deceleration: The Impact of Inflation and Rising Interest Rates

Nevertheless, some experts anticipate a deceleration in startup formation due to elements like inflation and rising interest rates. As interest rates continue to rise, job creation and startups are expected to slow down in comparison to previous years. This could lead to a potential decrease in entrepreneurial activities, impacting innovation and economic growth. Furthermore, with inflation pushing prices higher, startups may also face an increase in operational costs which could hinder their ability to stay competitive in the market.

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An Inflection Point in the Startup Ecosystem

Patrick Reily, Uplinq’s cofounder, a credit evaluation and scoring platform for small business lenders, refers to the October report as an “inflection point,” with several individual states already witnessing year-over-year reductions in startup activity. He emphasized that this downturn highlights the growing concern over the accessibility of funding for new ventures, especially amidst the ongoing economic uncertainty. Reily suggests that increased support and innovative financing solutions are urgently needed to revive small business growth and their ecosystem and combat this declining trend.

Challenges Ahead: Distressed Businesses and Uncertain Global Environment

Factors like increased distress among existing businesses and higher interest rates slowing lending are believed to contribute to the possible deceleration in business formation as we enter 2024. In addition, ongoing uncertainties surrounding global economic conditions and trade policies could further dampen the overall entrepreneurial enthusiasm. It is crucial for both policymakers and entrepreneurs to recognize and adapt to these challenges in order to support and sustain the growth of new businesses as we head into the next year.

A Prospective 2024 Boom: The Role of the Federal Reserve and Individuals

Thomas Hogan, an economist and senior fellow at the American Institute for Economic Research, expresses that a continued boom in 2024 for new and existing businesses remains plausible if the Federal Reserve effectively manages the current transition. In light of recent shifts in monetary policies, Hogan believes that maintaining low interest rates and applying appropriate regulatory measures will be crucial in stimulating economic growth.

This, in turn, will allow for increased investment, job creation, and sustained prosperity for both seasoned and emerging enterprises. Additionally, it is essential for individuals to understand the critical role they play in preventing the spread of contagious diseases and taking the appropriate precautions. By staying informed, maintaining good hygiene practices, and getting essential vaccinations, we can all contribute to a healthier and safer community.

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FAQ Section

What does the Monthly Business Formation Report say?

The report indicates that startup applications experienced a decrease in October, with high-propensity applications witnessing a 3.3% decline month-over-month. This could raise concerns for the overall economic growth and financial institutions such as banks and credit unions.

What is the current state of small business growth in 2023?

Despite the decline in high-propensity applications in October, overall 2023 startup numbers remained positive, with a total of 4.6 million applications, a 7% increase over the initial ten months of 2022. High-propensity applications also increased by 7%, reaching 1.48 million.

What factors could lead to a deceleration in startup formation?

Inflation and rising interest rates are two factors that could lead to a deceleration in startup formation. As interest rates rise, job creation and startup activities could slow down, impacting innovation and economic growth. Startups might also face increased operational costs due to inflation, making them less competitive.

What can be done to revive the small business ecosystem?

In order to revive the small business ecosystem, increased support and innovative financing solutions are essential. Policymakers and industry leaders should work together to provide better funding access and support for new ventures amidst the ongoing economic uncertainty.

What challenges will businesses face as we enter 2024?

Increased distress among existing businesses, higher interest rates slowing lending, and ongoing uncertainties surrounding global economic conditions and trade policies could contribute to the possible deceleration in business formation. Adapting to these challenges will be crucial for sustaining the growth of new businesses.

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How can a continued boom in 2024 be possible?

A continuous boom in 2024 can be possible if the Federal Reserve effectively manages the transition, maintains low-interest rates, and applies appropriate regulatory measures. This will stimulate economic growth, allowing for increased investment, job creation, and sustained prosperity. Additionally, individuals should take necessary precautions to prevent the spread of contagious diseases, contributing to a healthier community.

First Reported on: americanbanker.com
Featured Image Credit: Photo by Amina Filkins; Pexels; Thank you!

About The Author

April Isaacs

April Isaacs is a freelance writer and editor with over 10 years of experience. From the art scene in Paris to pastures in Montana, April has covered individuals' stories and can confirm that no two stories are the same.

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