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Should You Use Your Unemployment Benefits to Start an LLC?

Should You Use Your Unemployment Benefits to Start an LLC?

busy street with unemployed people

Millions of Americans have lost their jobs or have been furloughed in recent months, and schools and businesses across the country have been shut down. More job losses are expected in the coming months with unemployment anticipated to grow. Major industries and small businesses, including food, transportation, hospitality and travel, have seen sharp declines in business.

leading industries affected by the COVID-19 pandemic in the United States by share of jobs at risk

Can You Use Unemployment Insurance to Start a Business?

With unemployment on the rise each week, more and more Americans are applying for government assistance. The job market has significantly contracted, and the chances of finding new opportunities for employment are few and far between. As a result, many Americans are planning on foregoing the job search and starting an LLC, also known as a limited liability company. Lucky for them, collecting unemployment and starting an LLC is a viable option that is supported by the Department of Labor and a number of states.

jobless claims stats

Self-Employment Assistance Program (SEAP)

SEAP was initiated in 2012 in the midst of the Great Recession and allows the recently unemployed to create their own jobs and help get their businesses off the ground. If you are one of the millions of people that are applying for unemployment insurance (UI) each week, a visit to your state’s labor department website is the first place to start.

Information should be made available if SEAP is offered. If so, make sure to carefully review the criteria for applying to ensure your eligibility. Although requirements may vary by state, the main points cover the following:

  • SEAP will allow you to work on establishing your business while collecting weekly unemployment checks.
  • You do not need to actively look for work while on the program.
  • If you happen to start earning an income from your new business, that money will not be deducted from your unemployment payments.
  • You will receive training and support through online instructional videos, have access to resources and materials and receive entrepreneurial training with a business counselor.

States including New York, Rhode Island, Vermont, California, Washington, New Hampshire, Pennsylvania, Mississippi and Oregon offer the SEAP program; however, due to the state of the current economy and business hardships experienced across the United States, things may change quickly in the coming months as more states support the initiative. Make sure to check in with your state’s department of labor website for instructions and updates.

SEAP Eligibility Requirements

Where available, you must meet the following criteria to apply for SEAP:

  1. You must be eligible to apply for unemployment insurance (UI) benefits.
  2. You must have at least 13 weeks of UI benefits available of your unemployment.
  3. You must complete 20 hours of training and meet with a business counselor — thus the required minimum of 13 weeks.
  4. You must be 18 years old.

What If Your State Does Not Offer SEAP?

If you checked your state’s labor department website and SEAP is not offered, you can still use your unemployment insurance payments to help start your LLC, though any money earned from your business will need to be reported and deducted as you certify your weekly claims. (This same rule would apply if you accepted a part-time job, so working on your business and getting paid would be considered part-time work.)

Make sure to read your unemployment manual carefully and follow the rules! And if you make money while establishing your LLC, make sure to report it with each weekly claim. You may also be required to keep a log of your activities as they relate to starting your LLC.

The Benefits of Starting Your Own LLC

Starting your own business has many positives, including:

  1. You can follow your passion and finally give it a foundation
  2. You can employ all your learnings from your past jobs into your business
  3. You can find a purpose while quarantining and use it towards a future you envisioned
  4. You have the opportunity to create something from nothing…and reap the fruits of your labors
  5. It’s a great way to get off unemployment

When it comes to using your unemployment benefits to start your own business, the clear answer is yes…yes you can. Whether you fund your LLC through SEAP, or use your weekly unemployment benefit payments if SEAP isn’t offered in your state, the funds can help get the ball rolling.

An additional benefit of creating an LLC is that it can provide you with limited liability coverage and help protect your personal assets should there be a lawsuit filed against your company. And although an LLC does offer liability coverage, it is important to remember that the first “L” in LLC stands for limited, so having additional business insurance may come in handy.

Help Starting Your Own Business While Unemployed

Starting and running a business is hard work. It will require risk, a positive attitude, networking, people skills, commitment and a plan. But if there is ever a time to get started and pursue the dream of becoming your own boss, then it is now. It is also reassuring to know that it is acceptable to use your unemployment insurance payments under SEAP to pursue your dreams and start your LLC.

If the time seems right for you and you need any assistance in creating an LLC, or would like to learn more about starting your own business, start with the only “start a business checklist” you need. Information about LLC requirements and state-by-state filing guidelines are available and easy to follow. Incfile has helped over 2,50,000 entrepreneurs form LLCs and other business entities, and can help guide you as you head down the path of self-employment and financial stability.

Ready to get started? Click below!