Econ 919 - Small business development

May 18, 2018

 


Small and local is still the flavor for the majority of businesses around the Peninsula, but as many of their owners would tell you, getting those ventures off the ground is anything but a straightforward process.

 

 


 

Enter the Small Business Development Center. It’s a go-to for everything from developing business plans to finding out what to take to the bank when you need a loan. The Alaska SBDC is run through the university system and Cliff Cochran is the director at the local office in Soldotna. He says as much as any of those topics, the center also provides guidance for when not to go into business.

“We had a client a few years ago who came to us and wanted to start a rock (climbing) gym, which sounds really cool. We did more research and figured to have a rock gym you need about 50,000-100,000 population base. We’ve got about 34,000 in the central peninsula. So, he said ok, people are really outdoorsy here, it should do better than that. So we released a survey and found that there’s enough demand for it, but the price people were willing to pay wouldn’t meet his minimum. So he ended up deciding not to go into business and built a rock climbing wall behind his house and now he’s much happier as opposed to possibly losing his duplex.”

Cochran says about two-thirds of the people that come to the center with a business idea decide not to go through with it after they dig into the numbers.

“It’s either the market here is too small, or probably the biggest issue is access to capital. They’re great at making coffee, but they have maybe $5,000 but they need $100,000 to set up shop. So typically, to obtain bank funding, you’ll need 20% down, pretty good credit score, 650 or higher, some industry experience, 3-5 years and a really good business plan to get funded and a lot of folks don’t have that.”

Students at UAA also produce mountains of research data that the center can draw from to help determine the prospects for opening up a new business, right down to how many cups of coffee you’ll need to sell to make a go of it at that coffee kiosk you’re trying to open.

“We work with financial projections, so people coming in looking to start a coffee shop, we help them with all the startup costs and determining how many cups of coffee do you have to sell per day to break even. If your break even point is 40 cups a day, you might be doing okay. If it’s a hundred-something, that’s not so good. So it’s good to be able to plan out before  you start making serious expenditures," Cochran said.

And, while we’re at it, why are those coffee stands so popular, anyway?

“It depends. I know that Soldotna has more coffee establishments right now than Kenai, so if I was to plunk one down somewhere it might be more towards Kenai. I think they’re also popular because the startup costs aren’t terrible. You’re in the $40,000-$80,000 range, you can get one set up.”

And those startup costs can be shouldered by investors nowhere near a bank. Internet fundraising in the form of Kickstarter and other online sources, called fintech loans, has made a big difference in how capital is raised, and Cochran says the SBDC would like to get in on the micro-loan boom, too, though with different goals than locking in high interest rates.

“One thing I’ve also noticed on the Peninsula that people get kind of sucked into sometimes is the fintech loans. They’re easy to get; Kabbage, SnapCap, but they come with really high interest rates. Upwards of 50 (percent), they even go up to 99 percent, believe it or not. That’s like cancer for a business. So, not necessarily on the Peninsula, but statewide, our executive director, Jon Bittner, is really active in trying to figure out ways to help small business. We’re talking to native organizations and local governments...and we’re hoping to offer maybe a twenty, thirty-thousand dollar micro loan to clients, possibly even at zero percent interest, just to help them get their business started. Because we see a lot of small business owners who have a great idea, it would work, but they need ten, fifteen, twenty-thousand dollars. If they could just get over that hump, the would get in good shape.”

 

Cochran made his comments at a recent meeting of the Kenai and Soldotna Chambers of Commerce.

 

 

This week’s number: 0.4

 

That’s how much income rose for Alaskans, on average, from 2016 to 2017, to $41.5 billion statewide. That's according to this month’s issue of Economic Trends from the state department of labor. That increase represents all personal income, though, not just earned income through wages. That number actually fell, as the state continued to shed jobs throughout 2016. The slight bump in overall income can be attributed to a bump in the dividend and a smoking hot stock market. Meanwhile, the state continues to rank last in unemployment rate, overall job growth and private sector job growth.

 

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