Countertrend: Business start-ups on rise despite middling economy
A year ago, Dan Harrington was a plant manager at commercial truck tire repairer Wingfoot Commercial Tire Systems LLC, a joint venture between Goodyear Tire and Rubber Co. and Treadco Inc.
The work was good and he had no complaints about his salary. Still, he felt unfulfilled. He wanted to open his own business.
“You reach a point in your life when you’re comfortable with your finances and you begin looking for something more rewarding than day-to-day work,” he said.
He spent several months searching for the right opportunity. He knew the automotive industry. So when a franchise for Cottman Transmission Systems Inc., which rebuilds and repairs motor vehicle transmissions, became available, he snapped it up.
Starting a new business is always risky, and Harrington’s experience is no different. He was approved for a $115,000 loan backed by the U.S. Small Business Administration. Harrington and his wife, not wanting to risk losing their house if the business turned sour, chose to put up their collection of three customized Corvettes as collateral.
“Basically, it’s everything I have saved up,” he said.
Though the state’s economy is lukewarm at best, new businesses are being started at a faster pace than in the last two years, as measured by the SBA.
Using SBA loan activity as a barometer for new business creation isn’t foolproof because, when the economy is more stable, many small business owners don’t need its help in securing loans. But it is generally regarded as a useful, if incomplete, tool.
“When the economy is good, banks are more confident about making loans,” said Dave Lentell, the SBA’s public information officer.
In Harrington’s case, the economy could be a strong selling point for his business. When people are tightening their belts, they are more likely to try to repair broken parts on their cars than buy new ones, he said.
His franchise, open since April, is off to a strong start, ranking 129th in the nation in terms of sales among Cottman’s 350 shops. Harrington is exploring the purchase of a location in Cedar Rapids, and he expects to open another Cottman’s in Des Moines sometime in the next year.
In Iowa, the SBA, which helps small to medium-sized businesses obtain financing, helped secure 529 loans totaling $101.7 million during the most recent fiscal year, which ended in September.
“When the economy is conservative, we get more interest from people who are trying to start a business,” Lentell said.
As much as 45 percent of the money secured by the SBA likely went to businesses that are trying to get off the ground, Lentell said. The remainder of the money went to companies that have already been established, but need additional financing.
Among the companies that began their life in the past year are Deibler & Co., a marketing and communications firm; Swaelu, which creates Web sites and helps produce trade shows and radio advertisements; and several coffeehouses, including Waukee’s Chit and Chat Coffee House.
Last year, the SBA was involved in 482 loans that totaled $81.7 million. During fiscal 2000, the agency helped arrange 533 loans that amounted to $86.4 million.
Nationwide, the most common start-ups are in the technology and health-care fields, Lentell said. The most important thing a potential business owner has to do, Lentell said, is to find and exploit a niche.
Mark and Mari Jo Beeler, who live in Grimes, found themselves frequently driving back to Des Moines after they came home from work to find a wider selection of restaurants. Recognizing a void in the dining market, the couple opened Rookies Sports Bar and Grill in Grimes.
In August, they opened a second location in Clive, sharing ownership with chef Tony Pelican, whom they hired away from the Younkers Tea Room.
Mark said he’s thinking about opening a third restaurant, perhaps in the next year. The economy is not an issue, he said.
“Whether the economy is good or bad, there are always going to be people who want to treat themselves,” he said. “You have to make it good and hope they choose you over someone else.”
What the SBA offers
The Small Business Administration, which helps small to medium sized businesses receive financing, has a variety of functions that would-be entrepreneurs can take advantage of.
First and most important, the agency guarantees loans from banks or other private lenders made to both would-be and current business owners.
Staff members also provide business counseling and training programs. You know you’d like to be your own boss but you’re not sure what kind of business you’d like to start?
“We can talk to you about that, too,” said Dave Lentell, the SBA’s public information officer in Des Moines.
Perhaps one of the most important services the agency offers is help with developing and fine-tuning business plans. Without a strong business plan, banks are unlikely to approve any loans.
“A business plan is the largest determining factor in whether a business will be successful or not,” Lentell said.