RISMEDIA, July 8, 2009-(MCT)-In a good economy, Americans start hundreds of thousands of new businesses every year. And in a bad economy, like today’s? They do pretty much the same thing.
Fewer businesses with employees were created last year, and more were dissolved, than the year before. But the country still ended the year with an increase of 32,000 firms.
Nonemployer businesses – one-person companies such as taxi drivers and home-based eBay sellers – are expected to shoot up even more, although no figures are available yet.
The reasons are many. Some people lose their jobs and decide to start the businesses of their dreams. Others lose their jobs and choose self-employment because they see no other good options.
Since successful businesses take a long time to plan, some firms were already in the pipeline before the economy went south.
Still other firms were created to serve an increased need created by the recession – such as process servers to hand out foreclosure notices.
At the Florida Small Business Development Center in Broward County, the staff is swamped these days with calls and visits from entrepreneurs and would-be entrepreneurs, said Rafael Cruz, the center’s regional director.
Unfortunately, starting a business isn’t for everyone.
Cruz said some callers are asking for help with a business they started with little planning or forethought during the boom years. Many of them took home-equity loans to finance these ventures, and now they face losing both home and business.
Some think the federal stimulus plan will bail them out. But in most cases, it won’t, Cruz said.
“The Recovery and Reinvestment Act is not to reward people who were irresponsible,” he said.
There are some programs to help struggling companies, however. For instance, the U.S. Small Business Administration’s “America’s Recovery Capital Loan Program” can provide short-term aid to some firms
But the program is open only to established businesses that can show they made money in one of the past two years and can realistically project cash flow in the future.
What Cruz and his staff, who work under the auspices of the SBA, can offer in abundance is advice on matters such as writing a business plan, evaluating the marketplace and applying for loans – which are scarce these days.
In fact, even during good times, most new businesses are financed not with bank loans or venture capital but with home equity loans, personal credit cards and help from friends and family.
Now, however, even these resources are in short supply, especially for entrepreneurs who recently lost their day jobs.
“Your personal savings may have been depleted,” said Susan Amat, executive director of the Launch Pad, a resource center for University of Miami students and alumni who want to start businesses. “Because the housing market has dipped, your access to equity may be less than it has been. If your friends and family have gone through any of those things as well, they won’t have the access to capital they once had either.”
But Amat said starting a business during tough times also has advantages – like the opportunity to negotiate lower rent from landlords, advertising media and other suppliers.
And entrepreneurs who can survive at a time like this will have a much better chance of thriving when the economy recovers.
“Companies that start during these situations, they’re not just riding the wave of success,” she said.
©2009, The Miami Herald.
Distributed by McClatchy-Tribune Information Services.