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Starting a new business is easier than it was a year ago, but wealthy
investors, venture-capital firms and banks are still trickling out
money very selectively.
Bryan Cooley started Langlearner, an online language-learning tool,
in October with $330,000 in start-up money, including $200,000 of his
own cash and the rest from a partner. He has talked to several groups
of angel investors—small ones that typically put small amounts into very
young companies—but remains in limbo.
"They want a sure bet," says the 32-year-old Mr. Cooley, who worked
at a defense-consulting concern before starting his company in St.
Louis. "We're caught in the situation where we need the money to become
profitable, but they want to see profitability."
Small businesses under the age of three are as much as 50% less
likely to get a loan or line of credit than more established businesses
that are similar in other respects, according to a recent survey of
small-business credit conditions, which was undertaken to gauge the
impact of the recession by the National Federation of Independent
Business.
"They always have more trouble than mature businesses," says William
Dennis, senior research fellow with the federation. "But that's pretty
high."
Another problem is that about 84% of start-up businesses are
typically funded in the early phases using savings from company
founders, along with support from family members, friends and
credit-card and home-equity loans, according to an analysis by Paul
Reynolds, a professor of entrepreneurship at George Mason University, in
2008.
But now, many of those avenues have been cut off by the battered
values of homes, retirement accounts and other assets. In the 2009
fourth quarter, the share of home refinancings in which the owner cashed
out equity was 27%, the lowest level since at least 1985, according to
Freddie Mac.
Read the full (free) Wall Street Journal article here: http://online.wsj.com/article/SB10001424052702303410404575151871554316884.html?mod=WSJ_Tech_LEFTTopNews
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