How to Start a Business Using Your Unemployment Money

start a business with unemployment money

Many Americans are, unfortunately, receiving unemployment compensation right now. But that could be an opportunity for would-be entrepreneurs. Have you considered starting a business with that unemployment money?

And there’s a real need for innovation.Unemployment rose in the U.S. in April with the biggest monthly spike since 1948.  Small Business Trends contacted Mike Nunez, Chief Communications Officer at Incfile, to find out how to get your business up and running this way.

How to Start a Business with Unemployment Money

How to Start a Business Using Your Unemployment Money

“With unemployment on the rise, more and more Americans are applying for government assistance,” he writes. “The job market has significantly contracted, and the chances of finding new opportunities for employment are few and far between.”

Drop The Job Search?

He says that’s forced some Americans to drop the job search and start an LLC. These are also known as a limited liability company.

Nunez supplies a little extra information to sweeten the pot.

“Lucky for them, collecting unemployment and starting an LLC is a viable option supported by the Department of Labor and a number of states.”

Nunez has 21-years of experience on the Internet. His resume includes four years at Google. He spent time on the Shopping and DoubleClick Search teams there. He’s well qualified to supply practical advice to folks who want to be entrepreneurs.

Millions of People

Like suggesting starting out in the same place you draw your UI from.

“Are you one of the millions of people applying for unemployment insurance (UI) each week? A visit to your state’s labor department website is the first place to start.”

Look to see if the Self-Employment Assistance Program (SEAP) is offered. Then look over the criteria for applying to see if you are eligible.

How to Start a Business Using Your Unemployment Money

Establishing Your Business

“SEAP will allow you to work on establishing your business while collecting weekly unemployment checks,” Nunez says. “You do not need to actively look for work while on the program.”

If your state’s labor department website doesn’t offer it, there’s no need to give up. Unemployment insurance payments can still be used to start your LLC. There’s one important difference though. Any money earned from the business needs to be reported and deducted when you make weekly UI claims.

“This same rule would apply if you accepted a part-time job, so working on your business and getting paid would be considered part-time work.”

There’s more budding entrepreneurs need to know about. Like the fact that if you start earning some money for your new enterprise, that cash will not be deducted from unemployment payments while you’re on SEAP. Nunez also says there are online instructional videos for support and training. You can also get more training with a business counselor.

How to Start a Business Using Your Unemployment Money

Your Own Boss

He stresses the bonuses to being your own boss.

“The great part about starting your own business is creating your own ideal job! Whether your passion is marketing, food, retail, consulting or a myriad of other choices, use your passion to create your business.”

It’s also a great way to direct your energy in a positive way when you’re quarantined.

“Besides,” Nunez says, “You have the opportunity to create something from nothing and reap the fruits of your labors.”

Business Waters

Still, you’ll need to tread into these business waters carefully. Protecting yourself legally is a good idea.

“Entrepreneurs need to create an LLC. These can  provide you with limited liability coverage and help protect your personal assets if a lawsuit gets filed against your company. And although an LLC does offer liability coverage, it is important to remember that the first “L” in LLC stands for limited. So having additional business insurance may come in handy.”

He also suggests avoiding big purchases in the beginning. If you don’t need it right away you should start slow and evaluate everything you want to buy early on.

There are some other considerations.

“Before you start a new business, you want to make sure it’s going to be right for you and for the market, “ he says.  “Don’t blindly dive headfirst in—research everything you need to do before your doors open. Look into key areas for your industry—from market data and customer needs to taxes and setting up your business. Understand rules, regulations and laws and choose the correct business entity.”

Benefits and Challenges of Starting a Business with Unemployment Money

How to Start a Business Using Your Unemployment Money

Starting a business using unemployment compensation can be an attractive option for aspiring entrepreneurs, especially during challenging economic times. However, there are both benefits and challenges associated with this approach. Let’s explore these aspects in more detail:


  • Financial Support: Unemployment compensation provides a financial safety net during the initial stages of starting a business. It allows entrepreneurs to focus on building their ventures without worrying about immediate financial needs.
  • Time and Focus: Starting a business while receiving unemployment benefits can give individuals the time and focus they need to develop their business idea and create a solid foundation for their venture.
  • Self-Employment Assistance Program (SEAP): The availability of SEAP in some states offers additional support to entrepreneurs. SEAP allows individuals to work on their businesses while still collecting unemployment checks without actively seeking traditional employment.
  • Opportunity for Passion Pursuit: Starting a business allows individuals to follow their passions and turn them into a viable venture. It can be personally fulfilling to build a business around something one truly loves.
  • Flexibility and Autonomy: Being an entrepreneur provides the freedom to make decisions, set schedules, and define the direction of the business independently.
  • Networking and Personal Development: Starting a business opens up opportunities for networking and personal growth. Entrepreneurs can connect with other business owners, mentors, and industry professionals, which can lead to valuable partnerships and learning experiences.
  • Potential for Financial Independence: Successfully establishing a business can lead to long-term financial independence and stability, surpassing what unemployment benefits can offer.


  • Reporting Earnings: If the business starts generating income, individuals must report those earnings while making weekly unemployment claims. This can impact the amount of unemployment compensation received.
  • Legal and Financial Risks: Starting a business involves certain risks, and entrepreneurs must be prepared for potential legal issues or financial liabilities. Creating an LLC can provide some protection, but additional business insurance may be necessary.
  • Market Viability: Before launching a business, entrepreneurs must thoroughly research and analyze the market to ensure their product or service has demand and can be profitable.
  • Balancing Business and Unemployment Requirements: Navigating the balance between growing a business and meeting the requirements of unemployment benefits can be challenging. It requires careful planning to ensure compliance with the rules of unemployment while effectively managing the business.
  • Uncertainty and Stress: Starting a business is inherently uncertain, and relying on unemployment benefits adds another layer of stress. Entrepreneurs must be ready to handle the emotional and mental challenges that come with this uncertainty.
  • Limited Funds: Relying solely on unemployment money may limit the initial funding available for the business. Entrepreneurs must be resourceful and budget-conscious in managing their startup costs.
  • Time and Commitment: Running a business requires significant time, effort, and dedication. Entrepreneurs must be prepared for the hard work and challenges that come with building a successful venture.


Starting a business with unemployment money can be a viable option for individuals seeking self-employment opportunities during times of economic uncertainty. It provides a financial safety net and an opportunity to pursue one’s passions. However, aspiring entrepreneurs must be aware of the challenges and risks involved and approach their ventures with careful planning, research, and commitment. With the right mindset, dedication, and strategic approach, entrepreneurs can turn their business dreams into reality, even in challenging economic times.



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Rob Starr Rob Starr is a staff writer for Small Business Trends and has been a member of the team for 7 years. He is a graduate of Ryerson University in Toronto with a Bachelor of Journalism degree. His print credentials include employment with various Toronto area newspapers and three works of fiction: The Apple Lady (2004), Creekwater (2006) and Sophistry By Degrees (2008) published by Stonegarden Press In California.