Establishment Mobility in the United States: Interstate Move-Ins and Move-Outs This brief explores the movement of establishments within the United States by calculating an interstate establishment mobility ratio. Establishment mobility reflects the overall movement of establishments across states, and includes establishments in the private, public, and nonprofit sectors. Share: Facebook LinkedIn Twitter Download the Brief Establishment Mobility in the United States: Interstate Move-ins and Move-outs | Trends in Entrepreneurship, No. 12 pdf Featured highlights: In 2016, South Carolina had an interstate establishments mobility ratio of 2.23, meaning more than twice as many establishments moved into South Carolina than moved out of South Carolina. Idaho (1.76), Arizona (1.68), Maine (1.64), and Nevada (1.64) also had relatively larger mobility ratios, where establishment move-ins were more than 1.5 times establishment move-outs.Louisiana, New York, and Alaska consistently had about twice as many establishments move out of the state for every establishment that moved into the state every year between 2004 and 2016. DOWNLOAD THE BRIEF [PDF]
Strengthening Knowledge Creation and Research in Entrepreneurship: Inclusion Matters How is diversity and inclusion relevant to knowledge creation and research? Various studies indicate that researchers’ positionality – the various identities they hold – has a substantial impact on not only research topics, but also the theories and methods that scholars develop and use. Share: Facebook LinkedIn Twitter Download the Report Strengthening Knowledge Creation and Research in Entrepreneurship: Inclusion Matters pdf Inclusion in research systems (specifically, research training, universities, and the publishing and funding environment within higher education) is increasingly identified as a problem. An inclusive body of researchers is better equipped to produce relevant, actionable scholarship that accounts for diversity and difference. Why? There’s a strong link between the background, interests, and life experiences of a researcher and the questions and research topics they pursue. Inclusion does not just mean incorporating phenotypically different researchers into existing mechanisms of knowledge production. Researchers with unique life experiences will bring with them unique ways of thinking, identifying problems and questions, developing models of research, and contributing to the field. True inclusion efforts move beyond representing diversity and instead will create space for diverse ways of observing, thinking, theorizing, hypothesizing, testing, interpreting, and validating in research systems. Download the report to learn more [PDF] > Featured highlights Innovation can arise due to diverse teams having a broader range of experiences and background to draw from, they understand a broader potential range of product users than less diverse teams, and they problem-solve better, because they think about problems in unique ways. A number of studies have found that diverse teams are more resilient. Also, teams that are cognitively diverse perform more effectively and react to challenges more quickly than homogenous teams.Scholars who share identities with research participants have demonstrated the ability to use their shared experiences to gather richer data, particularly on sensitive subjects.An inclusive body of researchers is better equipped to produce relevant, actionable scholarship that accounts for diversity and difference. Download the Report [PDF]
Wooing Companies to Move: Are Business Incentives Worth the Cost? Economic development incentives aimed at attracting companies to a region have been a defining feature of many regional economic growth strategies. Are they worth it? Share: Facebook LinkedIn Twitter Download the Brief Wooing Companies to Move: Are Business Incentives Worth the Cost? | Entrepreneurship Issue Brief pdf The high-profile negotiations for Amazon’s second headquarters in 2018 serve as a prominent example of policy interest and substantial resources related to these incentives. In 2015, state and local businesses incentives in the United States totaled nearly $45 billion, and most of these incentives were in the form of job creation tax credits. As of 2019, some estimates place the total annual value of incentives closer to $90 billion. Yet business incentives largely do not produce strong positive gains on firm-level and broader economic outcomes – and they can impede local entrepreneurship and redirect public funds from other activities. This brief explores questions like: How to use incentives to attract existing businesses from other locations to a region?What is the cost of business incentives?Are the benefits of incentives worth the cost?Do incentives to attract existing businesses to a region mean sacrificing support for local entrepreneurs?What are the implications for policymakers? Download the Brief [PDF]
National Report on Early-Stage Entrepreneurship in the United States (2020) This report presents national trends in early-stage entrepreneurship for the years 1996-2020 in the United States, as well as trends for specific demographic groups when possible. Share: Facebook LinkedIn Twitter The Kauffman Indicators of Early-Stage Entrepreneurship is a set of measures that represents new business creation in the United States, integrating several high-quality, timely sources of information on early-stage entrepreneurship. This report represents four indicators that track early-stage entrepreneurship for the years 1996-2020: rate of new entrepreneurs reflects the number of new entrepreneurs in a given month, opportunity share of new entrepreneurs is the percentage of new entrepreneurs who created their businesses out of opportunity instead of necessity, startup early job creation is the total number of jobs created by startups per capita, and startup early survival rate is the one-year average survival rate for new firms. We report national trends for the four indicators as well as some demographic trends for the rate of new entrepreneurs and opportunity share of new entrepreneurs. The rate of new entrepreneurs was substantially higher in 2020 than in 2019 or in previous years, reflecting more transitions into entrepreneurial activity, broadly defined, among the population during pandemic conditions. At the same time, the opportunity share of this activity plummeted to the lowest share in 25 years, indicating that many of these transitions were undertaken by people with few other options for economic engagement. Report Highlights: Nationally, the rate of new entrepreneurs in 2020 was 0.38%, meaning that an average of 380 out of every 100,000 adults became new entrepreneurs in a given month. The monthly rate increased substantially in 2020 as the economy went through shutdowns, job losses, and reopenings that characterized the COVID-19 pandemic. The rate of new entrepreneurs was 0.30% among women and 0.48% among men, reflecting large increases for both from the previous year. In 2020, the rate of new entrepreneurs was 0.52% among Latinos, 0.38% among African Americans, 0.35% among Asians, and 0.36% among whites. It increased for all groups from the previous year. The rate of new entrepreneurs was 0.59% for immigrants – substantially higher than that for native-born Americans (0.34%). The rate of new entrepreneurs increased for both groups over the past year. The rate of new entrepreneurs was highest among the 45-55 year age group (0.49%) and lowest among the 20-34 year age group (0.28%). It increased sharply for all age groups. The opportunity share of new entrepreneurs was 69.8% in 2020, representing a substantial drop from 2019 (86.9%). This opportunity share of new entrepreneurs is the lowest over the past 25 years and perhaps longer. The decline from 2019 to 2020 during the pandemic was 17.1%, much larger than the one-year decline of 6.9% from 2008 to 2009 during the Great Recession. The opportunity share of new entrepreneurs declined sharply for both women and men in 2020. All ethnic and racial groups experienced large drops in the opportunity share in 2020, reversing upward trends over the past few years. Asian new entrepreneurs experienced the largest drop in the opportunity share (10.4%), followed by African American new entrepreneurs (6.3%). The opportunity share of new entrepreneurs dropped substantially for immigrants and the native-born population in 2020. All age groups experienced large decreases in the opportunity share, reversing upward trends since the Great Recession. Startup early job creation and startup early survival rates are based on data cycles that end in March, meaning that both indicators cover the first few months of 2020. National startup early job creation in 2020 was 5.0 jobs per capita, meaning that startups hired five jobs for every 1,000 people. The startup early survival rate was 78.1% in 2020, meaning that almost eight in 10 startups survived the first year. This survival rate was down substantially from the previous year, and it was the first drop in the survival rate since the Great Recession. The overall KESE Index – an equally-weighted composite of the four indicators – was -0.2 nationally. The index dropped substantially from 1.1 in 2019, recording the largest drop since the Great Recession. The index is normalized at zero. Download the Full Report Explore other Kauffman Indicators reports
Economic Engagement of Mothers: Entrepreneurship, Employment, and the Motherhood Wage Penalty This report takes up the relationship among motherhood, caregiving, the persistent wage penalty it carries for women, employment, and entrepreneurship. Share: Facebook LinkedIn Twitter Download the Report Economic Engagement of Mothers: Entrepreneurship, Employment, and the Motherhood Wage Penalty pdf Download Report Featured highlights By October 2020, mothers between the ages of 24 and 39 were nearly three times more likely than fathers in the same age range to report being unable to work during COVID-19 due to a school or child care closure.Some mothers may leave wage or salary work and turn to necessity-driven entrepreneurship to avoid completely disconnecting from the labor force.Among entrepreneur mothers, 1 in 4 reported being the sole provider in their household prior to the pandemic.Twenty-seven percent of Black entrepreneur mothers reported being sole providers, compared to:19% of Hispanic entrepreneur mothers.23% of white entrepreneur mothers.Less than 1 in 5 civilian employees has access to paid family leave. Download Report The economic value women bring to their own households and to the broader economy is well-documented. In fact, nearly all of the economic gains that have occurred among middle class families since 1970 have come from the increased earnings of women. Mothers make substantial contributions to the finances of many families and households. In 2018, nearly half of the more than 30 million families with children under 18 in the United States had either a single mother or a married mother contributing at least 40% of a couple’s joint earnings. Despite the importance of mothers’ economic contributions, the broader economy fails to support mothers in a variety of ways. The costs of raising children fall largely on families – and disproportionately on mothers. In addition to the lack of support for combining careers with caregiving, mothers face a motherhood wage penalty, which accounts for much of the gender wage gap. Even entrepreneurship, an economic activity that can potentially offer more autonomy and flexibility, is made more difficult for mothers by child care challenges and barriers to entrepreneurship for women more broadly. Why is motherhood undervalued and unsupported economically? What does entrepreneurship support mean for entrepreneurs who are mothers? And how can we support mothers’ access to opportunities to engage in the economy – and ease their access to opportunity through entrepreneurship? Download the report to learn more >
How Does COVID-19 Affect Challenges Facing Entrepreneurs? Trends by Business Age This brief takes a closer look at how business age matters in the way entrepreneurs feel the effects of COVID-19. It discusses challenges facing entrepreneurs before and during the pandemic, based on surveys with business owners during COVID-19 in spring 2020 and before COVID-19 in fall 2019. Share: Facebook LinkedIn Twitter The importance and difficulty of challenges facing entrepreneurs can vary based on where they are in their entrepreneurial journey.[1, 2] The effect of COVID-19 on businesses has been large and overwhelmingly negative, and effects can vary related to business characteristics, like industry, and business owner characteristics, like race.[3, 4] This brief takes a closer look at how business age matters in the way entrepreneurs feel the effects of COVID-19. It discusses challenges facing entrepreneurs before and during the pandemic, based on surveys with business owners during COVID-19 in spring 2020 and before COVID-19 in fall 2019.[5] Highlights In general, during the pandemic, entrepreneurs with a younger business were more likely than those with an older business to report that potential barriers were a challenge.Across business ages, entrepreneurs were most concerned with finding new customers. Among entrepreneurs with a new business, finding new customers surpassed funding to start the business as the top reported challenge during COVID-19.Accessing startup and growth financing during COVID-19 conditions was a bigger challenge for entrepreneurs with a new business less than 1 year old, compared to entrepreneurs with a young or mature business. Challenges reported by owners of new, young, and mature businesses during COVID-19 For entrepreneurs of all business ages, finding new customers was the most common challenge reported. Among those with a new business less than 1 year old, 4 in 5 reported this as a challenge (80%), compared to about 7 in 10 owners of businesses that were 5 years or older (70% among those whose business was between 5-10 years old, and 69% among those whose business was 10 years or older). Entrepreneurs with a new business face the greatest difficulty keeping existing customers: nearly 7 in 10 reported this to be a challenge (68%) compared to just over half of those with a mature business 10 years or older (54%). Accessing startup and growth financing during COVID-19 conditions was a challenge for more entrepreneurs with a new business. Entrepreneurs with a business under 1 year old were almost twice as likely to report funds to start the business as a challenge compared to those with a business older than 5 years (72% vs. 39%). Although startup funds are most often reported to be a challenge by owners of the newest businesses, they are still a problem facing more than half of those with businesses 1-5 years old (56%). The challenge of finding funds to grow the business was somewhat different, with the same percentage of owners of new and young businesses under 5 years reporting this to be a challenge (64%). Entrepreneurs with businesses 5-10 years and 10 years and older report similarly about growth financing challenges (45% and 47%). Self-doubt and fear was reported as a challenge by nearly 3 in 5 entrepreneurs whose business was less than 5 years old (58-59%). Less than half of entrepreneurs with a business 5 years or older reported this as a challenge (43-47%). Approximately half of entrepreneurs with a new business under 1 year old identified laws, policies, and regulations as a challenge (52%). This was 6-10 percentage points more than what was reported among those with a business older than 1 year (42-46%). Just over half of entrepreneurs with a business less than 1 year old reported skilled employees as a challenge (52%) compared to approximately a third of entrepreneurs who had been in business longer (34-35%). Approximately half of entrepreneurs with a new or young business under 5 years reported networks and connections was a challenge (49-51%). This compares to 1 in 3 entrepreneurs with a mature business (33%). Close to half of entrepreneurs with a new business under 1 year old reported information, education, or knowledge necessary for running a business as a challenge (48%). This is more than twice what was reported by those with a mature business (21%). Entrepreneurs with a new business were more than twice as likely as those with a mature business to report social support as a challenge (43% vs. 18%). For entrepreneurs whose business was between 1 and 5 years old, 34% reported this to be a challenge, compared to 24% of those whose business was between 5 and 10 years old. Approximately 2 in 5 entrepreneurs with a business less than 5 years old reported time to devote to the business as a challenge (38-41%). This compares to 32% among those in business 5-10 years, and 24% of those in business 10 years or more. Nearly 2 in 5 entrepreneurs with a business less than 5 years old reported location, region, or geography as a challenge (39%), compared to nearly a quarter of entrepreneurs with businesses aged 5 years or more (24%). Between 3 and 4 out of every 10 entrepreneurs identified technology as a challenge. This was most commonly reported among those with a new business (38%). More than a third of entrepreneurs with a business less than 5 years old reported mentors who can provide guidance as a challenge: 34% of entrepreneurs whose businesses were less than 1 year old, and 38% of entrepreneurs whose businesses were between 1-5 years old. This compares to just over a quarter of entrepreneurs whose businesses were between 5-10 years old (26%) and roughly 1 in 5 entrepreneurs with businesses 10 years or older (21%). Entrepreneurs with a business less than 1 year old were twice as likely to report inclusion based on race, ethnicity, gender, income, or other factors as a challenge compared to entrepreneurs with a business 10 years or older (28% vs. 14%). Top challenges by business age during COVID-19 Figure 1 shows the top five challenges entrepreneurs face by business age. Across all age categories, entrepreneurs are most concerned with finding new customers. Entrepreneurs with a new business under 1 year old report funds to start the business as more challenging than those with older businesses. Funds to start the business is not a top challenge reported among owners of businesses that are 5 years or older: these entrepreneurs instead point to laws, policies, and regulations as one of their top challenges. Self-doubt and fear appears in the top five challenges for each group. This is not surprising given the level of economic and business uncertainty during the pandemic. Figure 1. Top Five Challenges by Business Age < 1 year old Finding new customers (80%) Funds to start the business (72%) Keeping existing customers (68%) Funds to grow the business (64%) Self-doubt and fear (58%) 1-5 years old Finding new customers (76%) Funds to grow the business (64%) Keeping existing customers (59%) Self-doubt and fear (59%) Funds to start the business (56%) 5-10 years old Finding new customers (70%) Keeping existing customers (61%) Self-doubt and fear (47%) Laws, policies, and regulations (46%) Funds to grow the business (45%) 10 years or older Finding new customers (69%) Keeping existing customers (54%) Funds to grow the business (47%) Laws, policies, and regulations (43%) Self-doubt and fear (43%) How has COVID-19 changed challenges for entrepreneurs in business under 1 year? Nearly all of the challenges that entrepreneurs with businesses less than 1 year old were asked about have become more prevalent during the pandemic. The exception was networks and connections, which was reported as a challenge by a smaller share of these entrepreneurs (63% pre-pandemic vs. 51% during the pandemic). Notably, while funds to start the business was the top challenge before the pandemic (64%), finding new customers became the top challenge during the pandemic (80%). Yet the share of entrepreneurs with a business under 1 year old who reported funds to start the business as a challenge increased from 64% before the pandemic to 72% during the pandemic. The proportion of entrepreneurs with a new business that reported funds to grow the business as a challenge also increased from 54% to 64%. Self-doubt and fear was reported as a challenge by 58% of entrepreneurs with a business less than 1 year old during the pandemic, compared to 50% before the pandemic. The share of these entrepreneurs that reported laws, policies, and regulations as a challenge more than doubled during the pandemic, from 23% to 52%. Approximately half of entrepreneurs with a new business reported skilled employees to be a challenge during the pandemic (52%), compared to 39% before the pandemic.ii Among those entrepreneurs with a business under 1 year old, the shares that reported information, education, or knowledge necessary for running a business; social support; and time to devote to the business as challenges increased, up from 39% to 48%, 36% to 43%, and 36% to 41%, respectively. Location, region, or geography was reported as a challenge by more than twice the share of entrepreneurs with a new business, from 17% before to 39% during the pandemic. The proportion that reported inclusion based on race, ethnicity, gender, income, or other factors as a challenge rose from 17% to 28%. Notes (i) Response categories for keeping existing customers and technology were not included in the Fall 2019 survey and were added in Spring 2020. (ii) Interestingly, entrepreneurs whose businesses were less than 1 year old was the only group for which reporting skilled employees as a challenge increased. For those with older firms, there was a notable drop in reporting skilled employees as a challenge during the pandemic.6 About the Data Findings presented in this report are based on data from two separate surveys, both conducted by Global Strategy Group on behalf of the Kauffman Foundation. The first survey was administered in fall 2019 and included 405 entrepreneurs and 109 aspiring entrepreneurs. The second survey was conducted in spring 2020 and included 850 entrepreneurs. In both surveys, entrepreneurs were identified as individuals who had either opened or co-opened their own business. As part of these surveys, entrepreneurs were given a list of potential barriers and asked to rate each as “very challenging,” “somewhat challenging,” “not that challenging,” “not at all challenging,” or “not applicable to my business.” In this brief, responses of “very challenging” or “somewhat challenging” are considered challenges. Business age categories include: less than 1 year, at least 1 year but less than 5 years, at least 5 years but less than 10 years, and 10 years or more. Probability weights were used to calculate descriptive statistics. Both surveys are representative of business owners across the United States, rather than of businesses or industries. Findings from the surveys and this report, therefore, reflect trends among business owners and should not necessarily be used to make conclusions about businesses. Sources: Bennett and Chatterji. 2019. The entrepreneurial process: evidence from a nationally representative survey. Strategic Management Journal.Looze and Desai. 2020a. Challenges Along the Entrepreneurial Journey: Considerations for Entrepreneurship Supporters, Ewing Marion Kauffman Foundation.Fairlie. 2020. The effect of COVID-19 on small business owners: evidence from the first three months after widespread social distancing restrictions. Journal of Economics and Management Strategy.Kochhar. 2020. The financial risk to US business owners posed by COVID-19 outbreak varies by demographic group. Pew Research Center, April 23.Looze and Desai. 2020b. How Has COVID-19 Changed Challenges for Entrepreneurs? Implications for Entrepreneurship Support. Ewing Marion Kauffman Foundation. Acknowledgements: Jessica Looze and Sameeksha Desai Please cite as: Ewing Marion Kauffman Foundation (2020) “How does COVID-19 affect challenges facing entrepreneurs? Trends by business age.” Trends in Entrepreneurship, No. 13, Kansas City, Missouri. This is a publication by the Ewing Marion Kauffman Foundation utilizing content and data from multiple sources and external contributors. Every effort has been made to verify the accuracy of the information contained herein, and it is believed to be correct as of the publication date. Nonetheless, this material is for informational purposes. Readers are solely responsible for validating the applicability and accuracy of the information in any use they make of it.
Who Doesn’t Start a Business in America? A Look at Pre-Entrepreneurship Leavers To understand barriers in entrepreneurship, it is useful to gain insight into who wants to, but does not, start a business – and why. Share: Facebook LinkedIn Twitter Download the Report Who Doesn't Start A Business in America? A Look at Pre-Entrepreneurship Leavers pdf Pre-entrepreneurship leavers are people who have not previously owned a business, have been deeply interested in starting a business within the last five years, and had a specific business idea in mind, but ultimately made a conscious decision not to do so or wait. This report details some key findings about pre-entrepreneurship leavers drawn from a nationally representative survey of adults in the United States between June and August 2020. Featured highlights: Pre-entrepreneurship leavers reflect about 6% of the adult population.Many characteristics of pre-entrepreneurship leavers, including reasons for being interested in starting a business and steps taken toward entrepreneurship, were similar regardless of educational status (college degree).The most commonly reported step taken by pre-entrepreneurship leavers is discussing the business idea with a friend, work colleague, or acquaintance. This was reported by half of pre-entrepreneurs. Black, Hispanic, and White women were more likely to report taking this step than their counterpart men. Download the report [PDF]
How has COVID-19 Changed Challenges for Entrepreneurs? Implications for Entrepreneurship Support This report shares findings from a spring 2020 survey of 850 entrepreneurs about their experience during the pandemic, and compares them to results from a survey of more than 400 entrepreneurs in fall 2019, prior to the pandemic. Share: Facebook LinkedIn Twitter Download the Report How has COVID-19 Changed Challenges for Entrepreneurs? Implications for Entrepreneurship Support pdf COVID-19 has brought widespread changes to the lives and livelihoods of entrepreneurs across the United States. The compounded pressures related to public health, the economy, and the policy environment under COVID-19 have created a great deal of both personal and business uncertainty; and have fundamentally disrupted the entrepreneurial economy. Many businesses closed their brick-and-mortar locations, changed their business operations, and faced significant uncertainty related both to the pandemic as well as to the market, societal, and public policy responses accompanying it. The widespread economic effects of the crisis have changed consumer demand and behavior, and its global impact has had implications for supply chains. Entrepreneurs are facing a threat to their health and that of their families, employees, and customers, as well as an economic recession and a new, more complicated policy and regulatory environment. These pressures are compounded by the substantial uncertainty about future changes in each of these domains. Download the Report [PDF]
Fewer New Businesses Have Become Employers From 2005 to 2019, new business applications have increased while new employer businesses have decreased. Find out how this discrepancy between intent to hire and actualization has played out over recent years. Share: Facebook LinkedIn Twitter Download the Brief Fewer Businesses Have Become Employers | Trends in Entrepreneurship, No. 11 pdf Featured highlights: Between 2005 and 2019, the number of new business applications in the United States increased by 38.9%.Over the same time period, the number of these applications that became employers within eight quarters decreased by 27.8%.The share of new business applications that intend to hire decreased from 34.9% in 2005 to 13.6% in 2019, and the share of new business applications that hired decreased from 21.1% in 2005 to 11.0% in 2019 (projected). In other words, intent to hire among new business applications nationally consistently exceeded the level of hiring activity. Download the Brief [PDF]
Student Loans and Entrepreneurship: An Overview The relationship between student loan debt and entrepreneurship sits at the intersection of many questions related to labor markets, higher education, business dynamism, innovation, and capital markets. This brief considers these intersections. Share: Facebook LinkedIn Twitter Download the Brief Student Loans and Entrepreneurship: An Overview | Entrepreneurship Issue Brief pdf Student loans: Some facts Nearly 1 in 6 adults in the U.S. has outstanding student loan debt. Among those between the ages of 18 and 29, 1 in 3 reported having student loan debt.[1] Meanwhile, the share of new entrepreneurs aged 20-34 declined from 34% to 27% between 1996 and 2019.[2] Student loans: Some basics Federal loans are disbursed by the U.S. Department of Education. These loans are based on a student’s perceived financial need, and there are limits on the total amount that a student can borrow. Undergraduates are currently limited to $57,500, and graduate or professional students are limited to a combined total of $138,500 for both undergraduate and graduate loans. These loans offer flexible repayment options, and at least a portion are often subsidized for undergraduate borrowers. The subsidy for graduate borrowers was eliminated in 2012. In 2019, federal student loans accounted for roughly 92.2% of all outstanding student loans in the U.S.[3] Private loans can be offered by state education departments, universities, banks, and other lenders. These loans often require an established credit record or a cosigner, and they can be larger than federal loans. They can have either variable or fixed interest rates, and they are usually unsubsidized.[4] Private student loans made up the remaining 7.8% of all outstanding student loans in the U.S. in 2019.[5] Key trends in student loan debt in the U.S. include: Federal student debt tripled from just over $516 billion in 2007 to $1.5 trillion in 2020. Both the number of borrowers and the debt amount have increased in recent decades.[5]Two out of three college seniors (65%) who graduated from public or private nonprofit colleges in 2018 had student loan debt. The average student debt among graduating college seniors who took out student loans was $29,200.[6]The share of students who took out loans was smaller among those pursuing graduate or professional degrees than among those obtaining undergraduate degrees. Total debt, however, was higher for the students pursuing higher levels of education.In 2016, 54% of individuals graduating with master’s degrees had federal student loans, with an average amount of $63,700. Among those graduating with PhDs, 45% had federal student loans, with an average student debt amount of $107,600. Download the brief to learn more [PDF] > How can student loan debt matter for entrepreneurship? Among individuals who start businesses, higher levels of student loan debt are negatively related to business income and employment. As a result, there is concern about the job creation potential of these new businesses.[8] One way to consider the relevance of student loan debt is to think about the entrepreneurial process as a series of decisions. Surveys of borrowers suggest that student loan debt influences borrowers’ perceptions of their options related to entrepreneurship. Borrowers report, for example, that student loan debt has affected their decision or ability to start a business, including the choice to delay starting a business.[9, 10] A survey of 800 individuals between the ages of 18 and 34 found that among those with student debt who currently own or have plans to own a business, nearly half reported that their student loan payments affected their ability to start a business. It also found that approximately 4 in 10 young adults believe that student loan debt had already impacted or would impact their ability to invest in an organization or hire new employees,[11] suggesting that they think beyond whether to start a business and consider the additional decisions they may face in the future if they start a business, such as hiring. ➔ Student loan debt can directly affect an individual’s overall personal financial resources. Student loan payments reduce the amount of cash that is available for individuals to invest directly in entrepreneurial activities. Some aspiring entrepreneurs with student loan debt may not be able to accumulate enough of the upfront investment necessary to start a business. And those who are able to start a business may do so with less capital. As a result, they may need to delay or simply forego investments in some business activities, which may impact profitability and business growth. For example, if an entrepreneur does not have the ability to pay the upfront costs associated with hiring a worker to expand production capacity, business growth may be delayed.[12] ➔ Student loan debt can indirectly affect an individual’s ability to start a business. Student loan payments can also reduce an individual’s ability to save or create a savings buffer that would free them up to engage in new business activity. Entrepreneurship may not provide a steady and predictable income immediately, and a business may need time to become viable enough to produce sufficient income. Entrepreneurs, therefore, may need to concentrate on their businesses for several months or more before seeing profits, but they still need to pay for rent, groceries, and other daily living expenses during this time. Monthly student loan payments can reduce the volume of savings available to meet these basic needs until the business becomes profitable. As a result, an entrepreneur could decide not to start the business or to divert attention to other income-generating activities while also working on the business. ➔ Business failure can be more risky for entrepreneurs carrying student loan debt. Student loan payments require steady and predictable income. Entrepreneurship, however, is risky. Some entrepreneurs may find that their businesses do not provide the steady or reliable incomes they sought, and some businesses may fail. Business failure can be riskier for entrepreneurs with student loan debt than those without this debt, as the cost of defaulting on student loans is high.[8] Considerations The relationship between student loan debt and entrepreneurship isn’t necessarily linear or direct, and we need additional research on the specific levers that can affect this relationship. The considerations below can be useful for decision makers who seek to understand and respond to the challenges posed by this relationship. ➔ Acquiring education can be very important for an individual’s opportunities, including entrepreneurship. At the same time, it can create a financial burden through student loan debt. Some occupations require a high level of training and education, regardless of whether or not individuals start their own businesses. Wages are higher, on average, among individuals with more education, and occupations that require advanced degrees are projected to grow over the next several years.[13, 14] Being able to start a business in particular fields often requires specialized education because of specific occupational requirements or the nature of certain industries. More than two-thirds of self-employed civil engineers and biologists, for example, say that their occupations are closely related to their degrees.[15] For many individuals, it is necessary to take out loans in order to acquire the education they need. Some occupations that require higher education also require entrepreneurship skills. For example, almost 3 in 4 dentists in the U.S. are sole practitioners, and almost all dentists in the U.S. consider owning a dental practice at some point in their careers.[16] Dental school, however, can be expensive. In 2019, the average debt among dental school graduates in both private and public schools was $292,169. Fewer than 1 in 5 dental school graduates reported no student loan debt, and almost 40% of graduates with debt borrowed more than $300,000.[17] ➔ An institution’s approach to financial aid can matter. College graduates of universities that eliminated student loans from their financial aid policies have been found to be more likely to start a firm and more likely to receive venture funding within five years of graduation, compared to graduates of universities that did not remove student loans from their financial aid packages and consequently had more students with loans. Graduates from universities that eliminated student loans were also more likely to receive greater amounts of venture capital investment.[19] ➔ Education provides access to social networks and opportunities to build relationships that can be helpful for entrepreneurs. Connections made with faculty, staff, and other students while pursuing higher education can be important. These relationships can open up new opportunities and possibilities following graduation. Some students with higher levels of debt report that they were less likely to put off starting a new business if they had supportive relationships while in college.[10] Access to resources, like mentors, can be important not only in the labor market but also in opening doors to business ownership in the future.[15, 19] Students can build new social connections, new ideas, and new skills that may create possibilities for entrepreneurship, regardless of loans incurred. ➔ The relationship between student loan debt and entrepreneurship is not only about the individual. Entrepreneurs’ family financial situations also have an impact on decisions to start new businesses, particularly because many entrepreneurs face difficulty accessing capital and need to turn to personal sources in order to finance their businesses.[20] Students who do not take out loans because their families are able to finance their educations may also receive family support in financing a business. In these cases, the lack of student loans is only one of several financial advantages the individuals hold in pursuing entrepreneurship.[21] For those who do not have personal wealth, on the other hand, these capital needs serve as a substantial constraint, and student loans only exacerbate this barrier. Between 2012 and 2018, 1 in 4 families spent more than 11% of their take-home income on student loans. Among these families, younger and lower-income families had higher levels of student loan debt.[22] Download the Brief [PDF] Please cite as: Ewing Marion Kauffman Foundation (2020), Student Loans and Entrepreneurship: An Overview, Entrepreneurship Issue Brief, No. 5, Kansas City, Missouri. This is a publication by the Ewing Marion Kauffman Foundation utilizing content and data from multiple sources and external contributors. Every effort has been made to verify the accuracy of the information contained herein and is believed to be correct as of the publication date. Nonetheless, this material is for informational purposes and you are solely responsible for validating the applicability and accuracy of the information in any use you make of it. Sources 1. Cilluffo. 2019. 5 Facts about Student Loans. Pew Research Center. 2. Ewing Marion Kauffman Foundation. 2020. Who is the Entrepreneur? Trends in Entrepreneurship Series No. 9A 3. Amir et al. 2019. The MeasureOne Private Student Loan Report. MeasureOne. 4. Federal Student Aid. Federal Versus Private Loans. U.S. Department of Education. 5. Federal Student Aid. Federal Student Loan Portfolio. U.S. Department of Education. 6. The Institute for College Access & Success. 2019. Student Debt and the Class of 2018. 7. Smole. 2019. A Snapshot of Federal Student Loan Debt. Congressional Research Service. 8. Krishnan and Wang. 2019. The Cost of Financing Education: Can Student Debt Hinder Entrepreneurship? Management Science. 9. American Student Assistance (ASA). 2015. Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans. 10. Gallup and Purdue University. 2015. Great Jobs, Great Lives. The Relationship Between Student Debt, Experiences and Perceptions of College Worth. Gallup-Purdue Index 2015 Report. 11. Small Business Majority and Young Invincibles, 2016. Opinion Poll: Millennials Identify Student Debt, Retirement Savings as Barriers to Entrepreneurship. 12. Ewing Marion Kauffman Foundation. 2020. How Quickly Do New Employer Businesses Hire? Entrepreneurship Issue Brief, No. 3. 13. Torpey. 2018. Employment Outlook for Graduate-Level Occupations, Career Outlook, U.S. Bureau of Labor Statistics. 14. Torpey. 2019. High-wage Occupations by Typical Entry-level Education, 2017. Career Outlook, U.S. Bureau of Labor Statistics. 15. Blume-Kohout. 2014. Understanding the Gender Gap in STEM Fields Entrepreneurship. The Office of Advocacy of the United States Small Business Administration. 16. American Dental Association. 2013. Roadmap to Dental Practice. 17. American Dental Education Association. Educational Debt. 18. Krishnan and Wang. 2018. The Impact of Student Debt on High Value Entrepreneurship and Venture Success. SSRN Working Paper 3240607. 19. Ewing Marion Kauffman Foundation. 2020. Mentoring in Entrepreneurship Support: Some Basics. Entrepreneurship Issue Brief, No. 4. 20. Hwang et al. 2019. Access to Capital for Entrepreneurs: Removing Barriers. Ewing Marion Kauffman Foundation. 21. Baum. 2016. The Evidence About the Impact of Student Debt. In: Student Debt. Palgrave Pivot. 22. Farrell et al. 2019. Student Loan Payments: Evidence from 4 Million Families. JPMorgan Chase & Co.