Invited article by Catherine Fazio, Boston University; Jorge Guzman, Columbia University; Scott Stern, MIT and NBER. Search help by Yupeng Liu.

As jobless claims in the United States skyrocket, the federal government is taking unprecedented action to support small businesses. Its $ 349 billion Paycheque Protection Program launches a desperately needed lifeline for small and medium-sized businesses, offering low-interest loans to cover payroll, mortgage and rent payments. We applaud these efforts.

Small business represents over 99% of all U.S. businesses, nearly 50% of private sector employees and more than 40% of the private sector payroll. Along with large corporations and high-growth startups, Main Street businesses are a central pillar of the U.S. economy. Small businesses energize our cities and anchor our communities. They are essential to restore jobs, commerce and markets in the immediate wake of social isolation.


But, for Main Street businesses to play their part in the U.S. economic recovery, we must also catalyze New companies.


But, for Main Street businesses to play their part in the U.S. economic recovery, we must also catalyze New companies. Business dynamism—“The process by which companies are born, fail, grow and contract continually”is at the heart of economic productivity and growth.

Job creation is, by definition, a report number. We need New companies, not only small these, to create economic opportunities and restore the foundations of our economy. People who run small businesses that are not surviving the COVID-19 crisis need the ability to launch new businesses and start over. To date, the creation of new businesses has received little attention in economic relief efforts.

This must change. The creation of new businesses is starting to decline dramatically and worryingly.


To date, the creation of new businesses has received little attention in economic relief efforts.

This must change. The creation of new businesses is starting to decline dramatically and worryingly.


The Short-Term Impact of COVID in Washington and New York

Through the Startup Cartography Project, we study the rate, trajectory and growth potential of new business creation. Our project leverages population-level business registration records and predictive analytics to form measures of quantity, quality, and entrepreneurial performance at an arbitrary level of geographic and temporal granularity. We measured and mapped the startup creation rate and predicted the growth potential of over 40 million new businesses listed in 44 states from 1989 to 2016. Our measurements are leading indicators of the health of the U.S. economy. The first trends in the newly available data are disturbing.

Consider these simple charts of the number of new business registrations / day for New York and Washington between January 1 and March 31, 2019 and 2020.

While new business / day registrations in 2019 and 2020 are initially tracked quite closely, they diverge sharply from March 15 to 16, 2020 (when each state closed its schools and banned large gatherings). Each graph shows a similar trend. Following the first significant order of social isolation, new business registrations fall by more than 75% from the previous year, then the gap persists or widens. Neither the closure of government offices nor the suspension of the services of registered agents explain the magnitude of the decline. In both states, the registration process can be completed online and is not dependent on other license, agent, or permit requirements.

Is this a typical economic shock?

To provide some background, we look at the new business registration models for New York in the period around September 11, 2001 and at the start of the Great Recession (after the collapse of Lehman Brothers). We also consider Louisiana before and after Hurricane Katrina.

At the highest point of divergence after 9/11 and the collapse of Lehman Brothers, we see new business registration rates declining by around 10%. Both times, new business listings / day rebounded in two weeks. The current decline in new business registrations / day in New York and Washington thus offers a stark contrast. Not only are they 7.5 times steeper than those seen in New York after 9/11 and the onset of the Great Recession, but they also show no signs of a rebound.

After Katrina, new business listings / day in Louisiana effectively fell to zero. But, those rates rebounded (and even improved) with billions of dollars in federal aid. While many programs, including the “Road Home” (which provided residents with $ 9 billion to rebuild), have been subject to criticism, they probably contributed to the resumption of new business creation and the subsequent economic performance of the state.


Federal aid can make a significant difference by providing opportunities for the start-up and growth of new businesses.


Although approximate and preliminary, our analysis indicates that the impact of COVID-19 on the formation of startups is likely to be severe. It also suggests that federal aid can make a significant difference in providing opportunities for the start-up and growth of new businesses.

The CARES law aims to support existing businesses and streamline bankruptcy, not to create new businesses. It is not designed to foster the dynamism our economy needs to rebound.

To launch America: the Main Street fund

To revive America, we urge the establishment of a Main Street Fund to provide low interest loans of up to $ 500,000 to start new local businesses. Complementing the SBA microcredit program (which provides start-up loans of up to $ 50,000), this fund would inject capital at the mid-level needed to start the businesses that line our main streets, such as Restaurants ($ 375,500), dry cleaners ($ 500,000), and Coffees ($ 300,000).


As the United States tries to emerge from this economic crisis, we cannot afford to keep new business in our blind spot.


In the meantime, we encourage the Small Business Administration, the US Senate Committee on Small Business and Entrepreneurship, and the US Treasury to offer more advice on the extent of new business loans currently available and how to apply for them. And we invite universities, accelerators and the SBA to continue to provide mentorship to start-ups.

There are many types of businesses that will be critical to the US recovery. As the United States tries to emerge from this economic crisis, we cannot afford to keep new business in our blind spot. In order for Main Street businesses to remain a mainstay of the economy, we must save New businesses too.


Catherine fazio is a lecturer at Boston University and co-head of the Startup Cartography Project.

Jorge Guzman is an Assistant Professor of Management at Columbia Business School and Co-Head of the Startup Cartography Project.

Scott stern is David Sarnoff Professor of Management at MIT, director of the Innovation Policy Group at NBER and co-director of the Startup Cartography Project.


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