3 Roadblocks to Success as a Startup
KANSAS CITY (TheStreet) -- Companies more than a year old lose a combined average of 1 million jobs a year in the U.S. New firms add a combined average of 3 million jobs.
So says a report by the Kauffman Foundation, which included information from 1977 to 2005.
"If you really want to have a jobs agenda, then put money into expanding capital for startups," says Tom Ruhe, director of entrepreneurship for the Kauffman Foundation. "Without dispute, that is the job-creation engine in this country."
Yet, several factors stymie startups:1. Small-business lending remains tight Bank loans to small businesses dropped from $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to the Federal Financial Institutions Examination Council. "The biggest problem for [new businesses] is getting money," says Dave Ratner, owner of Dave's Soda and Pet City, a small chain of pet supply (and soda) stores in Western Massachusetts. "Banks are absolutely not lending money unless you're so credit-worthy that you don't need the money." The Small Business Administration subsidizes loans for thousands of applicants who might not otherwise receive them, but those loans have dropped off in recent months, due to lack of stimulus money. Furthermore, all SBA loans require a personal guarantee, usually in the form of a large asset, from any applicant who owns at least 20% of the small business. Critics argue that this requirement can deter applicants, especially in a recession. "At a time when a lot of Americans are worrying about losing their homes, how can you expect them to put up their house or their 401(k) as collateral?" Ruhe says. The SBA argues that, subsidized or not, issuing loans without requirements is not a realistic business practice. "You can't start a business and expect everyone else to take all the risk," says Michael Stamler, a spokesman for the SBA in Washington.
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