Lenders need to understand that self-employment is the new employment

Julia Amaral/(JLco) Julia Amaral - stock.adob

It's never been easier for people to work for themselves. The internet, digital tools and growing comfort with e-commerce means businesses just need a ".com" "linktree" or "@" instead of expensive storefronts. Customers are no longer limited to foot traffic on Main Street — every online user is now a potential customer. Video technology and social media recreate in-store experiences and facilitate services at a fraction of the overhead cost of retail, lowering the barriers to entry. Not surprisingly, self-employment is a driving force behind entrepreneurship and workforce growth in the U.S.

By 2027, 90 million Americans will work for themselves in one way or another. While these solopreneurs provide significant contributions to local communities and to the state and federal tax base, they face headwinds from financial and regulatory systems that are designed for bigger businesses. Business registrations, tax and accounting requirements, compliance and legal overhead don't often differentiate between a business of one and a bigger business. However, businesses of one often don't have the same kind of financial resources and dedicated teams that can help them comply with and navigate the labyrinth of requirements. The small business — and increasingly a business of one — is the engine of the American economy. And it's time for our policymakers to match the private sector solutions to support this growing sector.

One of the initial challenges for these self-employed individuals is business banking services. Traditional financial institutions often do not recognize them as businesses, but rather as individual consumers. This reduces the types of services and tools they are offered. And the simplicity of certain payment apps result in accounting messes, unexpected processing charges and confusion around FDIC eligibility. Fintechs and other startups are taking steps to provide this assistance with one-stop business banking platforms that set them up with the tools to automate bookkeeping, 1099 flows and other key business processes that solopreneurs often struggle to understand. Such platforms often provide them with their first business bank account, allowing them to avoid the accounting and tax messes that come with commingling personal and business funds. Community development financial institutions (CDFIs) can also play a role here in advancing digital lending opportunities and coaching for these unique entrepreneurs.

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While financial services technology is critical, the government can take action to enhance opportunities as well. Generally speaking, the U.S. Small Business Administration defines small businesses as those with fewer than 500 employees. While this analysis has been the basis for many impactful programs, policymakers should consider the effects of defining a class of solopreneurs that could benefit from a streamlined regulatory environment and a dedicated source of education to support regulatory compliance. A system that enables more people to work for and support themselves by reducing regulatory and legal barriers to entry is one that we should all be able to get behind.

Such a strategy could also consider state and federal partnerships that would minimize multiple registrations and set certain limits on taxable income from authorized side hustles. In addition, updated IRS guidelines that account for the messy reality of mixed business and personal expenses could help reduce the stress and guesswork that many solopreneurs face. Digital tools and social platforms have expanded customer engagement opportunities, but the bureaucratic hurdles have failed to keep pace. And this challenge will only grow as not only has Gen Z actively sought out this opportunity, but older generations are reinventing themselves as part of this burgeoning market. Terms like "quality of life" and "social impact" have more meaning now because they are more attainable than ever.

As we enter into a presidential election season, candidates have already begun laying out their big-picture policy plans for 2025. This growing population of solopreneurs deserve consideration and clarity on how these issues will be considered and addressed so that more people can more easily start and grow their own piece of the American dream.