Can You Start a Business While on Unemployment?

How Starting a Business Affects Your Unemployment Benefits

Young woman working at home

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While job loss can be a devastating moment, it’s also an opportunity for many people to chase an entrepreneurial dream. If you’re considering starting a business while collecting unemployment benefits, there are some things to consider before you begin.

There may be unemployment requirements to keep in mind. And if you take the leap in a down economy, you may find financing and demand for your product or service in flux. Having a solid plan that takes the economy into account is essential.

Key Takeaways

  • You can collect unemployment benefits while starting a small business, but any money you make may reduce your benefits.
  • You may still have to meet work-search requirements and be ready to take a suitable job as soon as one comes along.
  • A few states have self-employment assistance programs (SEAs) that waive work search requirements.
  • The biggest advantage of starting a business at this time is that you have the unemployment benefits as a financial cushion while you test out your business idea.

Can You Collect Unemployment and Start a Business?

You can start a business while collecting unemployment, but it may affect the amount of your weekly benefit and could be impacted by the time you need to spend searching for a full-time job.

When you’re collecting unemployment, there are typically work-search requirements that say you must be performing regular job searches and be available to work immediately if a position is offered to you. This may eat into the time you spend on your business, or it could require you to step away if a job is offered.

Rules vary from state to state, so you’ll want to review yours. But generally, nothing prohibits someone from starting a business while collecting unemployment, according to David L. Barron, a labor and employment lawyer at Cozen O’Connor. 

“Use this time to do all the legwork, groundwork, and planning of starting a business,” Barron said in a phone interview. “None of that jeopardizes your unemployment, as long as you’re meeting your state’s requirements for looking for work.”


What will matter is income: Should your business begin earning money, you need to report that, and it may reduce your unemployment benefits. For example, in California, you can earn up to 25% of your weekly unemployment benefit (assuming you've earned more than $100). Anything over the 25% is subtracted from your weekly unemployment benefit.

Job-search requirements can be time-consuming, depending on your state. So it’s important to take into account the time that you’ll need to spend job hunting and interviewing to satisfy your state’s reporting requirements. If you fail to meet them, you may risk losing your benefits.

Unemployment benefits typically also require you to be ready to return to work immediately if a job is offered. While there are lawful reasons to turn a job down, not returning to work for a qualified position would likely result in the termination of your benefits, Barron said. 

Self-Employment Assistance (SEA) Programs

A few states offer self-employment assistance (SEA), a program specifically designed to help people who are unemployed build their own business during that time:

  1. Mississippi
  2. New Hampshire
  3. New York
  4. Oregon
  5. Washington

States with SEA programs pay a self-employment benefit instead of regular unemployment insurance to help entrepreneurs as they establish their new businesses. The programs waive the work-search requirements to allow the participants to engage in full-time entrepreneurial activities.

States have specific requirements for training and counseling, which are designed to help educate new entrepreneurs. Check with your state to see what training and resources are available.

Pros and Cons of Starting a Business While on Unemployment

  • Time to consider other career options

  • Ability to test being your own boss

  • Opportunity to turn hobby into a profitable business

  • Unemployment benefits provide financial cushion

  • Any money earned may decrease your unemployment benefits

  • Funding may be hard to secure

  • Learning how to start a business can be challenging

Pros Explained

Unemployment can be a stressful time, but there are a variety of reasons it can be a great period to start a business. Losing your job allows you the time to consider other career options and to test out being your own boss.

The cushion of unemployment benefits offers a chance to see whether you really want to be your own boss. Some people discover they feel lost without external structure and direction. Now is a good time to figure that out.

Being unemployed also gives you a fairly low-risk chance to test whether your hobbies or interests have the potential to turn into a financially sustainable business. 

“If you have a hobby or something you do that you enjoy, you should continue to do it while you’re out of work,” Christopher J. O’Leary, senior economist with the Upjohn Institute, said in a phone interview. “The people who are most successful at transitioning to another career are those who have already had experience doing it, whether that’s playing in a band, painting signs, yard work, carpentry, or selling stuff on the internet.”

Cons Explained

If you are choosing an area that will require funding, it’s important to know that it may be difficult to secure during a recession. According to the Small Business Administration (SBA), bank lending often declines for small businesses during financial crises.


If you’re seeking funding for your business, check out small business startup grants, too.

New entrepreneurs should also be prepared for the additional challenge of long hours learning the ins and outs of running a business

Small Business Startup Resources

There are many free resources available to individuals planning to start a small business. These websites offer resource guides and connections to local associations and mentors that can help:


Local colleges and universities often have small business startup programs, too.

Frequently Asked Questions (FAQs)

When does it make sense to forego unemployment benefits while starting a business?

At some point, you may want to stop taking unemployment benefits so you don't have to meet certain requirements. For instance, job search requirements can be time consuming and may be a distraction from your business.

If you reach some momentum with your new business and don't have time to look for a full-time job, you may want to stop. You’ll need to look at your state’s unemployment requirements and your own financial situation.

What types of businesses make sense to start during an economic downturn?

During an economic downturn, being strategic with the type of business you start may be key. Specific businesses like auto repair, resume writing services, and tutoring often thrive. You can also make choices based on what will take your startup capital furthest.

For example, while opening and running a restaurant is expensive, a food truck requires far less startup capital. For professional services, working from home and hiring contractors and virtual assistants instead of full-time employees can cut down your costs, too.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Employment Development Department, State of California. "Reporting Work and Wages FAQs."

  2. United States Department of Labor. "Self-Employment Assistance."

  3. U.S. Small Business Administration, Office of Advocacy. "How Did Bank Lending to Small Business in the United States Fare After the Financial Crisis?"

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