Entrepreneurship surged in Michigan during the pandemic. Why?

Common wisdom holds that the pandemic has been terrible for business. Economic reports seem to back that up, especially when it comes to retail and hospitality. 

So it was surprising to learn this week that, despite some gloomy economic forecasts, entrepreneurship was up in the U.S. 

Between February 2020 and February 2021, the number of business applications surged by 43%, and was especially strong in Black communities. In Michigan, applications went up by 58% — higher than the country’s average during that time. 

These numbers stand in sharp contrast to the 2008 Great Recession, when entrepreneurship fell. One reason could be because capital is more readily available this time around, thanks to federal stimulus dollars. “This is the first recession in the last 50 years where the supply of money is larger than before the crisis,” an author of a recent report on the phenomenon told the New York Times. 

Small business service providers in Southeast Michigan have seen similar trends here. 

“We were watching our intake and applications very closely as the pandemic arose,” said Chanell Scott Contreras, executive director for ProsperUS Detroit, which offers training, services and loans to low- and moderate-income business owners in Detroit. “We thought we’d see a decrease given the economic environment, but actually intake increased, with much of it coming from emerging entrepreneurs.”

According to Wendy Thomas, Michigan Small Business Development Center’s director for the Southeast Region, her office saw a 700% increase in requests for assistance from 2019 to 2020. Much of that was for guidance around loan and grant applications, but there was also an increase in services related to entrepreneurship. 

“The pandemic hasn’t deterred people from wanting to start a business,” Thomas said. “Instead, many people who may never have thought about starting a business decided to pivot and try to ‘pandemic-proof’ their situation going forward.”

Thomas and Contreras said the sectors where they’re seeing the most growth are e-commerce, food businesses (like caterers and food trucks) and personal care professionals.

“There aren’t too many barriers for people in these fields,” Contreras said. “They’re things people are familiar with and which tend to hold even in difficult economic times.”

The projections are not all rosy though. The turn to entrepreneurship may be prompted by people losing their jobs or having their hours reduced, and starting businesses out of necessity. Also, the Census Bureau’s numbers on business applications include part-time freelancers who are self-employed. 

Potentially problematic in the long term, a majority of small businesses eventually fail. When they do, people could be taking on an additional debt burden.

Contreras said that leaders in the business service industry, as well as the philanthropic community, have identified this problem and are developing new tools to disrupt it.

Later this year, for example, ProsperUS is launching a small dollar loan fund — starting at just $300 all the way up to $5,000 — for business owners to test ideas on a smaller scale before committing to a larger loan. 

“It’s a ladder approach to accessing capital,” Contreras said. “It will allow people to understand the market for their products and services, before taking on larger debt capital or investing their personal money into a bigger operation. That should hopefully reduce the negative consequences of a business not working out.”