At first glance, the Rhode Island business community’s growth during the COVID-19 pandemic looks impressive: since 2019, new business applications have shot up by around 30%.
But compared with other states, that growth is a little lackluster. According to the U.S. Chamber of Commerce, Rhode Island’s new business growth per capita ranked near the bottom in the U.S., at 47th.
Is that cause for concern for Rhode Island’s small-business ecosystem?
Observers say that the state’s overall ranking doesn’t subtract from an encouraging growth rate, although there’s room for improvement.
Rhode Island recorded a 29.6% increase in new business filings in 2022 compared with 2019, according to federal data, and saw 10,943 applications filed in 2022 alone. The report drew from the U.S. Census Bureau’s Business Formation Statistics.
Rhode Island “should be heartened that we’re seeing increases,” said Amy Erickson, director of Rhode Island programs for Innovation Studio Inc., a nonprofit offering free support services for entrepreneurs. But, she noted, “I think the state should be looking at other states that are growing faster” and possibly adopt some of their business-friendly policies.
Oregon, for instance, gives people six months of unemployment benefits if they are laid off, which Erickson said provides “a catalyst for new growth because people aren’t afraid of falling off a cliff after their severance” while planning a new business.
Some states also have tax laws more favorable to small businesses, Erickson notes. Delaware, which ranked second in the report, is known for a range of asset protections to the point that many businesses will establish a virtual address there even if they’re based in another state.
Diane C. Fournaris, state director of the Rhode Island Small Business Development Center, says that while Rhode Island ranked low nationally, the state shows encouraging internal growth.
Fournaris didn’t have data on past growth immediately available but said that 30% growth stands out as a higher-than-usual figure for Rhode Island. During the organization’s 20 years in Rhode Island, there have been recorded decreases in new business formations, she added, such as during the 2008 recession.
Some barriers to filing for an Employer Identification Number, which the U.S. Chamber used to calculate new business growth, also exist at a nationwide level, Erickson says. For instance, federal poverty laws require new business owners to declare their income and possibly lose benefits if they’re above a threshold.
But on the flip side, entrepreneurs who don’t file for an EIN lose out on access to business resources such as COVID-19 relief grants and must draw more from their personal finances to fund their ideas.
A spokesperson for R.I. Secretary of State Gregg M. Amore declined to make him available for comment, stating that the office does not track the EIN metric used in the study.
In a statement, R.I. Secretary of Commerce Elizabeth M. Tanner pointed to the 30% growth in new business formation as evidence Rhode Island “is coming back stronger than ever.”
However, Tanner said, “we know that we have work left to do,” citing proposals such as lower taxes and fee eliminations in Gov. Daniel J. McKee’s proposed budget.
Fournaris expects Rhode Island’s upward trajectory to continue as the state evolves beyond a business formation process long known as overly complicated. In recent years, she says, the state has dedicated more attention to streamlining the process.
“I think we’ll catch up [with other states’ new business growth] as long as the perception keeps up that this isn’t as daunting of a process as it was in the past,” Fournaris said.
Basically no one has any data, or is doing any real analysis. No one is even pretending to do the work.