Sunday, May 24, 2009

Startup Pattern

As an addendum to my post yesterday, there's also this interesting idea about how small businesses start in a recession. People get laid off. Many decide that after a decade or two of experience, they're qualified to run their own business. They pull their savings and start their company. Many owners, for whatever reason, fold up these businesses a year or two later. At that point the economy has recovered and they go get a job. The survivors, at the very least, fill an economic niche or in the best case scenario, found an innovative company.

The problem I see with this model is the startup money issue. Usually this money comes from sources like home equity, investments, and credit cards. All of these sources have become unreliable, so I'm not sure where that startup money will come from. I know there's a lot of "sideline" money from the stock market, but if you're not willing to risk your money in the market in these turbulent times, I'm not sure you're going to take a chance on a startup business.

SBA loans are becoming a likely source of financing once again. A new bridge loan program comes on line in June. It appears aimed at existing businesses and offers a 100% government guarantee of the bank loan for amounts up to $35,000. It has a 0% interest rate and a repayment plan up to 5 years. There was something for small business in the stimulus package after all. I wonder what the banks get out of this?

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