Business formation soaring

Huge number of Portlanders launching new businesses

By Steve Law

The Portland Tribune, Jun 25, 2009, Updated Oct 30, 2009

L.E. BASKOW / TRIBUNE PHOTO

Owner Gary Yu (right) and baker Jorge Calderon assemble cream cheese pockets, the top-selling item at Gary’s Bakery & Bistro. Yu opened the store last August, as the recession was rearing its head in Portland.

As layoffs mount in Portland, more folks are opening their own businesses – despite a brutal economic climate and a dearth of traditional startup money.

Vitaliy Kornyta’s house-framing and trucking jobs dried up, so he sold his semi-truck and opened an auto repair shop.

Gary Yu, after years toiling in other peoples’ bakeries, built one of his own from scratch.

Jason Hilbourne, after noticing his sons going to bed clutching sharp-edged Lego Bionicle robots, designed a line of stuffed-animal-style robots that are safe for cuddling.

The three men are among thousands who have launched new Portland businesses in the past year, during the worst recession in decades.

Last month, the city of Portland issued 579 new business licenses – triple the number of a year earlier. In the past 12 months, the city issued nearly 7,000 new business licenses – two-and-a-half times as many as in the prior 12 months.

New business formation picked up noticeably starting last September, just as the recession was taking hold here, the world financial system was tottering and corporate layoffs were announced almost daily.

Some of the recent increase may stem from stepped-up enforcement to assure small-business owners get proper licenses, or from related changes in city policies, said Scott Karter, Portland Revenue Bureau audit supervisor. There also are seasonal blips, such as a huge spike in April when new business owners paid their first city business taxes.

Still, the economy appears to be a major factor in the upsurge, Karter said.

It’s common for people to form small businesses during economic downturns, especially when they can’t find jobs. But the recent pace of business startups in Portland is “remarkable,” said local economist Joe Cortright. In past recessions, many people left the area to find work, but that doesn’t appear to be happening so much now, he said.

“I view that as a very healthy sign for the economy in the long term,” Cortright said. “It’s like you’re planting seeds. Some of them will succeed wildly and have big economic effects.”

TRIBUNE GRAPHIC: PETE VOGEL • The number of people forming new businesses in Portland began surging last September, just as the economy began tanking and layoffs skyrocketed. This chart shows new business licenses issued by the city Revenue Bureau.

Big job generators

Oregon traditionally relies on small businesses for job creation more than most other states.

Companies with fewer than 500 employees provide 57.2 percent of all private-sector jobs in Oregon, compared to the national average of 50.2 percent, according to the latest data, from 2006, compiled by the U.S. Small Business Administration. Only seven states have a higher share of jobs from smaller companies, and those states tend to be more rural in nature – Maine, Vermont, North and South Dakota, Wyoming, Idaho and Utah.

What’s also remarkable about the brisk pace of Portland business startups is that it comes at a time when startup funding has fizzled, which wasn’t such a barrier in prior recessions.

“Usually during recession periods such as this, historically, new business startups have increased,” said Harry DeWolf, director of the Small Business Administration’s district office in Portland. “This time, we have the banking challenges and the financing challenges.”

People launching small businesses typically rely on personal savings, loans from family, credit cards, bank loans and tapping equity from their homes.

But shrunken home values and the banking crisis have largely closed the spigot on home equity loans and mortgage refinancing.

Many credit card companies are raising interest rates and lowering customers’ lending limits.

Family members that face disappearing home equity and dwindling retirement funds have less wherewithal to help relatives start businesses. And banks, normally picky about helping startups because of their high failure rate, are more gun-shy than ever.

In past years, at least 25 percent of the area banks offering SBA-guaranteed loans were willing to loan to startups, DeWolf said. “I would say it’s probably less than 5 percent now.”

Money still available

His office, which serves Oregon and Southwest Washington, has guaranteed 513 loans to small businesses, worth a total of $109 million, in the past eight months. That’s well below the average $266 million in SBA-guaranteed loans issued in each of the prior three full years. SBA loans go to businesses that have been around awhile as well as startups.

TRIBUNE PHOTO: L.E. BASKOW • Vitaliy Kornyta works on his cherished Lada in the auto garage he opened three months ago, at age 22.

Despite the financing challenges, many entrepreneurs are creative about finding ways to get their business started.

“The majority of businesses get started, basically on a shoestring, with a lot of sweat equity,” Cortright said.

Some loans are still available for the right business plan, though clearly in tighter supply.

Portland Development Commission, the city economic development and urban renewal agency, expects to provide $4 million in business loans for the fiscal year ending this month, said Fred Atiemo, who manages PDC’s business finance programs. That compares to $6.4 million last year and $9.8 million the year before that, he said.

PDC also is finding that borrowers are coming to the agency with far less supplemental funding from other sources than in past years, Atiemo said.

Kornyta said he put in about $35,000 of his own money, much of it from selling the truck, and got about $45,000 from his mother, which he said came from an insurance settlement after his sister was in an accident.

Wu got a deep discount on his bakery fixtures and equipment when another baker went out of business five years ago, and he put the gear in storage until recently. His wife also arranged an $80,000 second mortgage on their home before the market tanked. Wu said he works almost 17 hours a day, and his wife works 14 hours.

Hilbourne used $60,000 of his own savings to start his toy manufacturing company. He does the work, with the help of his wife, while maintaining his regular job in engineering services.

TRIBUNE PHOTOS: L.E. BASKOW • Jason Hilbourne created his own toy manufacturing business after designing cuddly robots called Bunk Bots.

As more people start businesses, a record number are turning for assistance to the local Small Business Development Center in the Lloyd District, a state and federally funded assistance program for entrepreneurs.

“We’ve seen a lot of people coming through our doors, more so than we’ve ever experienced,” said Tom Lowles, local director. The program, affiliated with Portland Community College, first opened in 1983.

It could be a good time to start a business, Lowles said. New entrepreneurs can test the market and validate their business concept, he said, and be poised to take advantage when the economy recovers.

stevelaw@portlandtribune.com

NEW OWNERS SEEK NICHE DESPITE SOUR ECONOMY

Catering to the tastes of ‘New Chinatown’

Gary Wu didn’t exactly plan to open a bakery in the midst of a deep recession.

But so far he’s making a go of it, largely by catering to the tastes of immigrants in eastside Portland’s “new Chinatown.”

Wu and his wife, Amy Xie, opened Gary’s Bakery & Bistro, on Division Street and Southeast 86th Avenue, last August. A month ago, they added a bar in the adjoining space.

They already have five employees and some loyal customers, judging from the 10 people at the bakery on a recent weekday afternoon.

The key is serving baked goods while they’re warm and fresh from the oven, Wu said, arguing that it’s even more important than flavor. And people who immigrated from China tend to prefer less sugar and oil in their baked goods, he said.

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