Business Applications (Total) - Historical Chart
Business Applications (Total). Gray shaded areas indicate U.S. recessions.
Source: Federal Reserve Bank of St. Louis (FRED), Series BABATOTALSAUS. Shaded areas = NBER recession dates. Updated 2026-03-09.
The Formation Funnel Is Leaking
Filing for an EIN takes 15 minutes. Building a business that pays employees takes, on average, 8-12 months from application date. That lag -- the time between application and the first payroll record appearing in BLS data -- is the most important and least discussed metric in business formation.
In the pre-COVID era, roughly 35% of high-propensity applications converted to employer businesses within 8 quarters (2 years). That conversion rate has been declining. Preliminary Census data suggests the 2020-2021 application cohorts are converting at closer to 25-28%. More people are trying to start businesses. Fewer are succeeding at the hard part: generating enough revenue to hire someone.
The reasons are structural:
- Higher startup costs: Rent, insurance, and labor costs are all 20-30% higher than in 2019, raising the revenue threshold needed to sustain employees
- Tighter credit: Banks have pulled back on startup lending, and SBA loan approval rates have declined from 2021 peaks
- Competition saturation: With record applications, each new business faces more competitors in the same market
- Regulatory burden: State and local licensing, insurance requirements, and compliance costs are increasing
The Survivor Bias in Formation Data
The businesses that do convert from application to employer firm within 2 years tend to be better-capitalized, better-managed, and in higher-growth sectors than the ones that do not. This creates a survivor bias in the data: the formations that count are disproportionately strong businesses, which makes the aggregate formation numbers look healthier than the underlying application-to-survival funnel actually is.
Why the Formation Lag Matters for the Economy
New employer businesses are the primary source of net job creation in the U.S. economy. Existing businesses, in aggregate, shed about as many jobs as they create in any given year. It is new firms (less than 5 years old) that drive net employment growth. When the formation pipeline slows or leaks, future job creation is compromised -- not today, but 12-24 months from now.
The current situation is paradoxical: record applications suggest entrepreneurial ambition is at an all-time high. But the declining conversion rate means actual employer formation may be growing much less than the application numbers imply. The economy is generating entrepreneurs at an unprecedented rate. It is not generating businesses at the same rate.
Credit Access Is the Binding Constraint
For most would-be employer businesses, the single biggest obstacle is access to affordable startup capital. Banks have tightened lending standards for startups (Fed Senior Loan Officer Survey data confirms this). SBA loan volumes are below 2019 levels in real terms. The gap is being filled by MCAs, revenue-based financing, and high-cost online lenders -- all of which charge rates that make it harder for new businesses to achieve profitability.
The 10-year average for total applications is 373K. At 532K, we are far above that average. But if the conversion rate continues to decline, the actual number of new employer businesses may be only modestly above the pre-pandemic norm despite applications being 2x higher.
Bottom Line
Do not confuse applications with formations. The headline number is aspirational. The conversion funnel determines economic impact. And that funnel is narrowing at every stage: from application to business plan, from business plan to first revenue, from first revenue to first employee. The formation lag is the distance between American ambition and American reality.
Business Formation Time - Frequently Asked Questions
Based on Census Bureau data, most businesses that form do so within two quarters of filing their EIN application. The four-quarter window captures the vast majority of conversions. Regulatory complexity, capital access, and industry type all affect the timeline.
Permitting and licensing delays, difficulty securing a commercial lease, supply chain backlogs for equipment, and tight credit conditions are the most common factors. Industries with heavy regulation (healthcare, food service, construction) typically take longer.
The pandemic accelerated formation for some business types (e-commerce, home-based services) because they required minimal physical infrastructure. For brick-and-mortar businesses, COVID extended the timeline due to supply chain delays and construction backlogs.
Historically, about 20-25% of all applications and roughly 50% of high-propensity applications convert to employer businesses within four quarters. The conversion rate varies by state, industry, and economic conditions.
Tight credit extends the formation timeline because aspiring business owners cannot secure startup loans. When the Senior Loan Officer Survey shows banks tightening standards, formation times typically lengthen because fewer applicants can access the capital needed to open.
This analysis uses FRED series BABATOTALSAUS (applications) and BFBF4QTOTALSAUS (formations) from the Census Bureau's Business Formation Statistics program. The formation time estimate is derived from the relationship between these two series.