Financial Roadblocks Trigger Small Business Declines
Report details strong growth among surviving businesses
ANCHORAGE – At the start of the busy summer season, many small businesses across the state prepare to open their doors to the annual influx of new customers.
They can count themselves lucky. A study released today by the Kauffmann Foundation of Entrepreneurship highlighted a big number: The survival rate for new businesses founded six years ago dipped below 50 percent for the first time in 2010.
The Kauffman Firm Survey, an eight-year study of nearly 5,000 randomly-selected businesses founded in 2004, detailed the dip in loan approval and survival rates and skyrocketing payment problems that may have contributed to a sharp decrease in the number of new firms just two years ago. According to another report by the same organization, the number of new businesses as a percentage of total companies dropped to a historical low of eight percent in 2010.
The survey gave several hints as to the cause of the decline. About 40 percent of the small business owners who applied for a loan two years ago were rejected. Many cited stricter lending regulations; others said they simply didn’t have the collateral. A growing number of entrepreneurs said they've struggled when consumers just didn't pay their bills.
But the numbers had a bright side. The companies who made it past their sixth birthday experienced a growth in personnel, with roughly half of them employing more than seven people. Alaska remained at the front of the pack, placing fifth nationwide when it came to entrepreneurial activity. Every month in 2011, more than 400 businesses were formed for every 100,000 residents.
Foundation directors said the numbers played a vital role cushioning the struggling economy over the past few years.
"Without the new jobs created by business startups, the Great Recession would have been even deeper, with many more jobs lost," said Robert Litan, vice president of research and policy. "If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation."
Of all the roadblocks in the way of budding businesses, financing remains one of the largest. Anchorage entrepreneurs will soon have access to another resource, though: More than $13 million in investment capital for high-growth Alaska startups.
The money, provided through the federal treasury’s venture capital program, would be awarded to local small businesses based on reviews by the Anchorage Economic Development Corporation and a municipal advisory board.