Wednesday, May 26, 2010

What Happened to the Entrepreneurs?

During every past American Recession, the recovery was always led by the return of the entrepreneur. People would move from the large companies and jump into their own startup which would fuel the next expansion. However, there doesn't seem to be a resurgence of the start-up during this recovery.

Now, this may be because this recession was pretty bad or it may be due to a lack of demand for new services which startups would find. I think it has to do with the lack capital available to the entrepreneurs. In the past, they would get a business started by running up credit cards or pulling cash out of their home with a second mortgage. However, across the nation, housing prices have dropped about 30%, which would be enough to wipe out most 30-something's equity. Add that to the tight lending environment, and you kill off new business startups.

In some cases, there will be startups funded by a third party. For instance, where people get tired of watching their stocks portfolios drops or of getting 1% on CDs, they might lend it or invest in someone's startup. But this cuts out the first-time entrepreneurs since they are not likely to get private funding without a track record.

The fix on this would be an expanded and simplified lending system for startups. The SBA has some programs out there, but they are slow and difficult to get going. A better method might be to bring back the business plan competitions of the 90's.

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