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Should You Start a Business During a Recession?

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A recession is defined as a period of economic decline, one that historically lasts, on average, four to five years. During a recession, businesses may scale back operations or close their doors altogether. It doesn't have to be all gloom and doom, though. A recession can actually be a good time to start a business, provided you do your research and go into with solid advice and guidance. Read on to learn why.

Many People Start Businesses During a Recession

Recessions are often considered a time where everything shrinks. That is true, but it’s also true that many companies actually get their start in these challenging climates. In fact, studies have found that 50% of Fortune 500 companies started in either a down market or full blown recession.

Why is that? Because, as more people get laid off or lose trust in traditional employment, it also creates opportunities — to try something new, to connect with new customers, and even potential for financial support, out-of-work talent, and more. Of course, that’s just the tip of the iceberg.

Benefits of Launching in a Recession

If you’re a Tampa Bay resident, there are a number of financial benefits to starting a business in this area. For starters, you can take advantage of the many qualified product- and service-based businesses in the area. Countless businesses exist to help you run your business, such as website designers, digital marketing agencies, staffing firms, manufacturers and suppliers. Supporting local businesses can strengthen the local economy, while forming new connections that help your own business grow.

As a recession hits, you may also benefit from a larger talent pool. An economic downturn often results in layoffs, making it easier to find skilled workers for your new venture. It’s also highly affordable to start a business in Tampa Bay, with low business filing fees and a sales tax rate of 7.5%.

Tampa Bay Area Tax Filings and Financial Benefits

For Tampa Bay area business owners, a recession can also offer unexpected financial benefits. For starters, tax credits may be created to stimulate growth and encourage economic activity. These tax credits serve as an incentive to engage in certain activities, such as hiring, research and development, implementing sustainable energy, and more.

These tax credits allow you to keep your capital, which you can spend on other aspects of running and growing your business. Here are just some of the common federal small business tax credits Tampa Bay area business owners might consider:

  • Credit for Paid Family and Medical Leave
  • Credit for Small Employer Health Insurance Premiums
  • Credit for Employer-Provided Childcare Facilities and Services
  • Disabled Access Credit
  • Small Employer Pension Plan Startup Costs Credit
  • Empowerment Zone and Renewal Community Employment Credit
  • New Markets Credit
  • Work Opportunity Credit
  • Qualified Research Expenses Credit

Of course, that’s only federal — there are also tax credits offered in Florida, including:

  • Rural Job Tax Credit
  • Urban High-Crime Area Job Tax Credit
  • Capital Investment Tax Credit
  • Community Contribution Tax Credit
  • New Markets Tax Credit
  • Research and Development Tax Credit
  • Renewable Energy Production Tax Credit
  • Tax Refund for Building Materials Used in Redevelopment Projects

Take Advantage of Low Interest Rates

Financing a new business during a recession is often challenging. However the Federal Reserve typically reduces interest rates. Low interest rates mean that it is often easier to borrow capital to fund your venture and you are paying less to borrow the capital. This means you get the capital you need to grow your business and there is more left over after paying it back to help keep your business profitable.

Finding Help With Business Finances

In addition to tax credits and low interest rates, several other programs can help when it comes to funding a new business during a recession. Some of these resources are offered through federal programs, while others are privately funded. Additionally, each comes with its own terms, so always do your research or consult with a business advisor.

Small Business Loans

  • SBA-Guaranteed Loans: loans from select lenders specifically for small businesses.
  • Business Term Loans: traditional loans secured from private lenders
  • Business Line of Credit: issued by private lenders, you can borrow up to a certain amount, paying interest only on what you use
  • Startup Loan: business financing based on personal credit issued by private lenders
  • Equipment Financing: loan specifically for purchasing commercial equipment needed for your business issued by private lenders
  • Accounts Receivable Financing: a loan that allows you to borrow against unpaid invoices that is issued by a private lender

Business Grants

Grants are given under the pretext that certain work will be performed with the money provided and don’t have to be repaid. Various organizations offer grants to further specific work. Grants are also available for women, minority, and veteran-owned businesses. Popular grant programs include:

Hillsborough County specific grants include:

Other Economic Assistance

If you decide to start a business during a recession, you may also be eligible for disaster relief programs. Disaster relief could include programs related to flooding, drought, fires, storms, earthquakes, pandemics, etc. It’s important to keep in mind that these are temporary based on limited funding by Congress.

  • Paycheck Protection Program (PPP): a program designed to have loans forgiven for keeping employees during the COVID-19 pandemic. The program is currently suspended but may be reopened with another stimulus package.
  • SBA Economic Injury Disaster Loan (EIDL): a loan for small businesses and nonprofits that are experiencing temporary loss of revenue as a result of the pandemic.
  • SBA Express Disaster Bridge Loan: allows small businesses that already have a relationship with an SBA lender to quickly access up to $25,000 while waiting for a decision on an EIDL application.
  • SBA Debt Relief: SBA will pay six months of principal, interest, and any fees borrowers owe for current 7(a), 504, and microloans, and all those disbursed before 9/27/2020. PPP and EIDL borrowers are not eligible.
  • Rapid Response Recovery Assistance Program (R3): Three programs available to kickstart small businesses, get employees back to work, and workplace improvements (specific to Hillsborough County).

Small businesses can also get additional assistance through programs like:

  • SBA Guaranteed Surety Bonds: Helps small businesses win contracts by guaranteeing customer work will be completed.

Get Your Business Off the Ground in Tampa Bay

A recession or time of personal change doesn’t have to be an excuse to not pursue starting your own business. In fact, quite the opposite! However, it’s important to have strong financial and accounting advice when starting a business during a recession.

A Tampa Bay area CPA qualified business advisor can help you set your business up for success by structuring your bookkeeping and reporting, planning your tax payments, and more. The experienced team at BAAP C.P.A. helps thousands of Florida-based businesses find the road to success every year, and we’re ready to help you get started, too.

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