Scarce financing thwarts conventional wisdom on business startups

Conventional wisdom says there should be more startup businesses starting up: Unemployment in Illinois reached 10.1 percent last month, the highest rate in 25 years; few employers are willing to hire; and ousted workers and managers often decide that working for themselves is a better option.

This time, however, conventional wisdom is wrong. Counselors at SCORE and the Illinois Small Business Development Centers, advisers who are most likely to talk to startups, are seeing fewer entrepreneurial wannabes actually startup.

The lack of startups isn't for lack of interest. In fact, startup counseling "is up a little" says Lee McFadden, chair of the Fox Valley SCORE chapter, where startups typically account for a majority of the counseling time. Harriet Parker, director of the Illinois SBDC at Waubonsee College, Aurora, says, "We still have businesses that are starting."

Money is the problem.

"When the bottom fell out, the media scared a lot of people," says Jan Bauer, director of the Illinois SBDC at College of Lake County, Grayslake. "'Don't spend money,' was the message, and (financial backers) still just aren't spending money. There are opportunities, businesses that are doing well. But most of them already have banking connections."

Says Wayne Barcheski, who manages the Naperville office of Fox Valley SCORE: "It's much harder to finance a startup today."

Entrepreneurs traditionally self-finance their startups, often using corporate buyouts or tapping retirement funds. But, explains Barcheski, "Buyouts aren't what they used to be; yesterday's one-year package is maybe one month. Balances in 401(k)s are down. And the home (many would be entrepreneurs) tap is worth 20-30 percent less than it was."

Compounding the problem is that even the relatively small number of investors who once would back startups have pulled back. "Private investors," says Dennis Sester, "are not there."

Sester, manager of Fox Valley SCORE's Elgin office, adds, however, that potential startups often "haven't done their homework. Most of the time, (startups) come to us looking for funding. 'Are there grants?' is a question we hear a lot."

SCORE chapters have no grant money and do not make loans. However, counselors both there and at the SBDCs - which similarly have no grant money and do not make loans - generally know which local banks offer SBA-guaranteed loans and are quick to share that information. Of course, borrowers still must pass muster at the bank.

Fox Valley SCORE (scorefoxvalley.org), part of a national network of 370 SBA-related SCORE chapters where free advice is available from retired and quasi-retired business executives, offers counseling at nine locations in DuPage, Kane, Will, DeKalb, Kendall and McHenry counties. Similar assistance is available at more than 20 Cook and Lake county locations through the Chicago SCORE chapter (scorechicago.org).

E-mail me for SBDC contacts.

Questions, comments to Jim Kendall, JKendall @121MarketingResources.com.

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