According to LendingTree, new business applications saw a record plunge in April at the heels of the pandemic outbreak. States hit hard observed new business application fillings had dropped showing the least number of applicants.
The report reveals eight of the top 10 states where businesses applications dropped the most are located in the Northeast.
New Business Applications Slowed by Pandemic Response
While out of the 10 states where business application rates rose or dropped the least, seven are in the South. This according to the Census Bureau designations. There was also an upswing in the number of applications in some states. The report attributes this to a possible pent-up demand from earlier in the pandemic economic cycle.
During that period small businesses were forced to shutter as stay-at-home orders were instituted. In fact, a report by MetLife and the US Chamber of Commerce in May reveals 29% of businesses said they closed their businesses temporarily by Mid-April. Furthermore, the US economy contracted by 5% in the first quarter of 2020 signaling a possible recession in the making.
The decline follows a 2.1% increase in the nation’s economy during the fourth quarter of 2019. As a consequence, many small businesses turned to the Small Business Administration’s Paycheck Protection Program (PPP) to meet their immediate cash flow needs. One third (32%) of the small business population has applied or tried to apply, for a PPP loan. The period also saw a decrease in consumer spending and exports.
How States Fared
New York State tops the list, with the number of new applications plummeting by 35.5% in April 2020 compared to figures from the previous year. Last year it ranked fourth amongst the states with the highest number of new applications being filed at 19,120. That number has since declined to 12,330 in April 2020.
Montana and New Jersey follow New York as seeing fewer applications in April this year compared to figures from last year. This year Montana saw only 840 applications down by 28.2% from last year’s 1,170. New Jersey is ranked third after seeing 6,780 application this year compared to 2019’s 9,430 applications, a drop of 28.1%
Conversely, the state of Wyoming saw a 24.6% increase in business applications this year compared to April 2019. A stark contrast to this year’s March figures where the state saw the number drop by 9% last year. In the same thread, Mississippi’s overall business applications in April was up 12.5% year over year. Georgia is first across the states, with nearly 1,200 more business applications in April 2020 than in April 2019. Other states saw an increase during the same period including Louisiana (up by 5.4%) and South Carolina (up by 1.9%).
LendingTree looked at the number of new business applications filed in each state in April 2019 compared to April 2020 using data of applications for an Employer Identification Number (EIN).
Understanding the Loan you Apply For
Many small businesses use loans to fund their businesses so they can access that extra bit of capital to fund an expansion or take out a lease for their new location. While loans could be great for business growth, they could also prove detrimental if not planned and managed well.
The key to navigating through your debt paying process is to understand the terms of your business loan. Simply put the term is the amount of time that the loan lasts. As a borrower, you must pay back the money within that specific timeframe. Different loans have different terms which state how you pay the loan, the amount of interests due, as well as penalties associated with it. Failing to understand the details of your loan contract could mean that you have exposed yourself and your business to risk because of a bad deal.
If your expertise lies elsewhere hire an accountant, financial advisor or even a lawyer to explain what you are signing.