Starting a Business While Unemployed

Losing your job or being laid off can be scary, but it can also present some unique opportunities. Starting an LLC while on unemployment could be one of them. You might find it surprising that it’s even possible (and legal) to start a business while collecting unemployment benefits. But it is, and for some, it’s a first step toward entrepreneurial freedom.

But it’s important to note that unemployment benefits might look different while you’re starting a business. In this guide, we’ll cover the key considerations to make if you’re hoping to start a business.

Can you start a business while on unemployment?

It’s completely legal to start a business while you’ve filed for unemployment. No state laws exist to say that you can’t do so. However, state laws do vary regarding what unemployment benefits will look like if your business earns revenue. Some states will reduce your benefit amount based on the income you receive from your small business. Other states actually offer a specific program to help unemployed individuals start a new business instead.

Ultimately, you’ll need to consult your state’s unemployment laws to learn what the terms are in your area.

Pros of Starting a Business on Unemployment

There are some advantages to starting a business while on unemployment. For one, it can be a good way to test out and research new career opportunities. Even though you’ll have to dedicate a lot of time to seeking new employment, you can still find opportunities to brainstorm business names, learn about business entity types, and more.

But, of course, a big benefit is the income. Granted, unemployment benefits aren’t as large as your paycheck. But when you’re starting a business, even a small stream of income can help fill in the gaps for your family.

Cons of Starting a Business on Unemployment

There are also some drawbacks to starting a business on unemployment. First, your time will be limited since you will have to actively seek new employment to receive unemployment benefits. You’ll have some spare time, to be sure, but you can’t work full time on starting your business. Dreaming up your business idea or going to entrepreneurial training will have to wait until you’ve done your job search for the day.

Plus, if you’ve filed for unemployment, your budget might be a little tight, which can make it difficult to have start-up capital — or even solicit it from a bank. Every business needs start-up capital to avoid a problem called undercapitalization (when a business doesn’t start with the funds it reasonably needs to operate). Often, small business owners, especially those who start an LLC, fund their start-up from their own pockets. If you’re collecting weekly unemployment benefits, that money might be limited.

Ultimately, the success of starting a business during unemployment varies depending on the type of business you’re starting (some businesses require very little money to start). And, of course, no matter how much money you have, your business can only succeed if you dedicate enough time to it.

Self-Employment Assistance Programs

In some states, unemployment insurance benefits aren’t the only options available to workers. Self-employment assistance programs are also an option. A few states have these programs to encourage people on unemployment to start a business.

What is self-employment assistance (SEA)?

Self-employment assistance (SEA) is an alternative to unemployment benefits offered in five states to date: Delaware, Mississippi, New Hampshire, New York, and Oregon. These assistance programs encourage unemployed workers to create their own jobs by becoming entrepreneurs.

To qualify for an SEA program, an individual must have eligibility for unemployment benefits. But instead of meeting job search requirements, individuals under SEA benefits can work full-time toward starting a business. These self-employment activities can even include business counseling, technical assistance, and other formation activities.

How SEA Works

To be eligible for SEA benefits, you first need to check that you’re eligible for regular unemployment benefits. If you are, you should contact your state’s unemployment insurance office to inquire about SEA programs (if they’re available where you live). They’ll direct you to the proper paperwork to get started.

If you have eligibility for benefits through your state’s SEA program, you can apply through your state’s unemployment office. Then you’ll receive your benefits. Currently, SEA benefits are actually equivalent to regular unemployment insurance benefits. 

We can help!

Starting a business — even while you’re taking unemployment benefits — doesn’t have to be a solo endeavor. Here at ZenBusiness, we help first-time business owners keep the stress of starting a business to a minimum by handling the red tape. We can even start your LLC for you for $0 (plus state fees). And then we’ll support you with helpful tools like a registered agent, filing your annual report, and more.