With More Stimulus, Startups Could Grow at Warp Speed
We've already seen three direct payments and countless PPP loans for individuals and small businesses, but further Covid-19 stimulus could completely redefine the startup landscape in 2021 and beyond.
It goes without saying that Covid-19 had a devastating effect on businesses in 2020, particularly small businesses and startups. Many entrepreneurs had to put their dreams on hold or completely throw in the towel. Moreover, businesses that had been running smoothly for years suddenly found themselves with virtually no cash flow. Partisanship in Washington D.C. delayed the first round of Covid-19 stimulus, forcing thousands of these businesses to close their doors in the process.
Since then, the government has strengthened its commitment to helping small businesses and individuals struggling to make ends meet during the pandemic. Under the Trump Administration, the CARES Act appropriated $302 billion to aid small businesses and created the Paycheck Protection Program (PPP). The PPP opened a window for small business owners affected by Covid-19 to apply for loans from the government to help pay for employee salaries and similar business expenses. Later, the PPP loans were expanded to include freelancers, contractors, and small businesses that may not have met the requirements for the first round of loans.
In March of 2021, the newly inducted Congress, in conjunction with the Biden Administration, introduced and passed the American Rescue Plan. This new legislation injected $1.9 trillion into the economy, bolstering Covid-19 preventative measures and medical infrastructure, while also providing financial assistance to individuals and small businesses. In total, there have been six bills passed through Congress worth approximately $5.6 trillion.
How Covid-19 has impacted startup culture
Thanks in large part to the Payment Protection Program, startups have had access to low-interest (and potentially forgivable) loans to help them sustain and grow their businesses. However, even under the expanded PPP criteria, businesses needed to be in operation since February 15, 2020, or earlier. Consequently, startups that began during the pandemic could not access this cash.
Fortunately, direct payments to individuals also gave some help to new startups. Thus far, any single person earning less than $75,000 per year should have received $3,200 in direct stimulus payments. While this may not be enough to sustain a startup for very long, it could be enough to keep a startup afloat until it can bring in revenue. Moreover, unemployment benefits have also been expanded as a result of the Covid-19 legislation, ensuring that unemployed individuals can at least pay the bills until they get their venture off the ground.
The startup landscape in 2021
Putting aside fiscal assistance for a moment, it’s important to take note of the new startup landscape that has developed in 2021. While Covid-19 has put some industries like travel and hospitality on the verge of collapse, it has helped others expand rapidly. For example, IT services, online education, and various other sectors have seen gains over the last year and a half.
The key to creating and building a startup in 2021 is analyzing the characteristics of our “new normal.” What business models are flourishing? What no longer works? By asking these questions, many entrepreneurs will find that traditional brick-and-mortar businesses are currently a difficult sell to angel investors or even traditional lending institutions. With social distancing and masks still in place, workforces are transitioning to telecommuting en masse. Meanwhile, businesses that have the capacity to move their products and services into the virtual sphere are doing so as quickly as possible. Still other businesses are adapting their business practices to accommodate stringent health and public safety regulations.
While it may sound overly opportunistic, there has probably never been a better time to enter the world of entrepreneurship. As a result of the pandemic, a lot of entrepreneurs have a better chance of entering markets in which many competitors have had to close their doors for good. Thus, more hawkish entrepreneurs can swoop in to take advantage of market gaps that are quickly being filled by larger businesses.
Can entrepreneurs expect more aid in the near future?
As of this writing, it’s still too early to say if there will be more Covid-19 aid in 2021. In the United States and many other developed nations, the vaccine rollout is cutting case numbers by a huge margin. By the end of 2021, the vast majority of Americans are expected to be vaccinated. Though this will be a huge step toward stopping the spread of Covid-19, it won’t undo the economic damage that’s already been done.
This is why many figures in Washington D.C. are calling for further aid. Senators Bernie Sanders and Elizabeth Warren, among others, have called on President Biden to provide recurring direct payments and small business aid until the crisis is effectively over. Other members of Congress have also called for more investments in infrastructure, medical care, and state-sponsored programs for small businesses and startups.
However, the bipartisan divide did not go away overnight when President Biden took office. In fact, despite the overwhelming popularity of direct payments and small business aid, many in Congress believe that the government should wait to see how existing legislation affects the economy and the national deficit. However, others, particularly Democrats, don’t think lower-income individuals and small business owners have time to see how things play out. As a result, the future of Covid-19 aid will be a major issue of contention.
While further Covid-19 stimulus is uncertain, it could completely reinvigorate new and existing startups in 2021. Entrepreneurs who are short on capital can use government aid to bring new ideas to struggling sectors, helping to bolster the economy on multiple fronts. Moreover, the ever-changing nature of the pandemic requires new businesses to consistently fill new gaps in the market. In the meantime, we will just have to wait and see how much more (if any) Covid-19 stimulus will come to the entrepreneurs who need it most.
Entrepreneur Leadership Network Contributor