As layoffs grow, so do start-up businesses

However dreary the economic forecast, Tiffany Pernell is betting St. Louisians will always find a little money to party.

That's the crux of Pernell's business philosophy as she and her partner, Tracy Norfleet, push forward with plans to open their first business -- an upscale spa and party place for girls. Even as consumers dramatically cut spending on nonessentials, Pernell is confident the company, Pretty n Posh Spa, Parties and Accessories, will be a hit.

"You would be amazed how much people will spend on their kid's birthday," said Pernell, 32, who sought counseling from a local business incubator.

It might seem a little daring to begin an entrepreneurial venture in a period when even well-established companies are folding, but business incubators in the area are reporting an increase in residents looking for help as they set out on their own.

Small businesses, those with 500 or fewer workers, employ about half of private-sector workers in the United States, and their success or failure plays a pivotal role in the economy. That means a growing number of small businesses is good for the area, even when times are bad, said Dennis Breite, vice president of St. Louis Enterprise Centers, which operates four of about a dozen business incubators in the metro area.

"Their success is the region's success," he said.

It's not unusual to see a boost in business startups as large numbers of employees are laid off, Breite said. The sudden loss of a job gives potential entrepreneurs the push they need to get started, and business incubators are there to help them in the early stages of the process by providing individualized counseling, training and work space.

Craig Frahm, chief financial officer at the Economic Development Center of St. Charles County, said the business incubator had seen a significant bump in interest in the past few months. The center's two locations, in St. Charles and St. Peters, now house 43 burgeoning companies, which puts the incubator at about 90 percent capacity. And prospective tenants continue to inquire.

"I've been doing three tours a day as opposed to three a week," Frahm said.

The rising interest in start-ups wasn't entirely unexpected -- incubators tend to get busier in a bad economy, and vice versa. "When things are really good in the economy, incubation is not all that great," Frahm said.

'AN EXCEPTIONAL TIME'

In fact, a slumping economy is actually an almost ideal environment for the recently downsized to get to work on the business ideas they've been wistfully mulling over for years, said Alan Hauff, director of the Small Business and Technology Development Center at the University of Missouri-St. Louis.

Hauff has counseled a large number of new clients who have told him they chose to go into business for themselves after being laid off at larger companies, such as Anheuser-Busch.

"Now is kind of an exceptional time," he said. Prices are low for many supplies, Hauff said, and the tide of companies leaving the market means there is room for others to move in. Pernell sees the same sort of opportunities in the work force, noting that the search for qualified employees for Pretty n Posh should be relatively easy considering how many people are looking for a job.

"If we were open, it would be great because we would have so many potential employees," she said.

Still, starting a business in a recession can be challenging.

Pretty n Posh, for example, would be in business already except for the fact that Pernell and her partner have run into an issue that has tripped up many entrepreneurs recently: They can't get a loan.

The two figured they would need about $80,000 in startup money, an amount they settled on after it became clear their original $160,000 estimate was far more than they thought any bank would loan them. The loaned cash would pay for rent, employee salaries, furniture, a sound system, limousine and other supplies. They hope to use work space at St. Louis Enterprise Centers, which has been advising them.

Pernell and Norfleet have approached three banks in recent months, and each has given them the same advice.

"The banks have told us, 'You have a great idea, but maybe you should just wait a year,'" Pernell said.

Ron Mueller has seen this sort of problem a lot recently. Mueller, a site director of the Small Business Development Center in St. Charles, advises people who are in the early stages of developing a business.

"Right now banks are not wanting to do loans to startup businesses," he said. "It's very tough unless they've got some collateral."

Business incubators can provide wannabe entrepreneurs with help through counseling and office space, but getting a loan in a credit crunch is no easy maneuver.

One of the ways Mueller said he advised clients was by pointing to the difficulties they might incur while operating their businesses. It's a good time for people with good ideas to get started, he said, but every idea should be carefully examined.

"What we do is, we ask the hard questions that need to be answered," he said.

Pernell, of Florissant, has been saving money for her new venture, but she and her partner won't have enough cash to open unless they find a bank willing to make the loan or an angel investor who will put up the capital. They have already spent a few thousand dollars for startup expenses such as attorney fees.

Regardless, Pernell said, she's optimistic the venture will take off soon. On the bright side, she added, the recession has forced her to look more carefully at ways to be more efficient.

"You learn how to cut back," she said. "You learn how to deal with things."