The news was good for a while.

Nine months after Katrina ravaged the Big Easy, the city's small fries seemed to be making a comeback. Indeed, locally owned shops reopened at a faster pace than large chain stores, according to a study by professor Richard Campanella, director at the Center for Bioenvironmental Research at Tulane University.

Campanella has made a weekly bike trip along three New Orleans commercial thoroughfares (Magazine Street, St. Claude Street and Carrollton Avenue), tracking which stores have opened their doors along the approximately 16 miles of businesses. He found that 73% of small businesses have reopened since the storm, compared with 60% of regional chains and 47% of national chains.

But that was back in May, and things don't appear as rosy now. While small business openings have continued to outpace big store openings, says Campanella, overall numbers have slowed down. Worse, while more entrepreneurs are itching to be a part of the city's recovery, few financiers are willing to take a risk on them.

"Small business owners are in jeopardy of phasing out," says Tim Williamson, co-founder of Idea Village, a non-profit resource for small businesses in New Orleans and one of the few to jump into the fray. Idea Village has granted nearly 150 loans to small business owners, but has been forced to turn away more than 550 additional requests.

While most of the city's commercial banks are up and running, they aren't underwriting loans with abandon. Alden McDonald, president of Liberty Band and Trust Company, the first African-American-owned commercial bank in Louisiana, admits that, while he's worked with many entrepreneurs to restart companies or open new businesses, his hands often are tied when it comes to bending eligibility requirements. His take: "A lot of the professionals aren't sure if they're going to come back."

The Small Business Administration hasn't exactly been aggressive, either. Of the $10 billion in loans originally earmarked by the SBA to help rebuild businesses and homes in the area, only $2.1 billion has been lent, and only $300 million of that amount went to small businesses. According to a report backed by Democrats on the House Small Business Committee, 85% of the dollars promised to small businesses have yet to be dispersed.

"I don't know anyone who's gotten an SBA loan," says Jimmie Thorns, owner of the real estate appraisal company Thorns Consulting and a board member of the Black Economic Development Council and the Chamber of Commerce. "It's been an absolute nightmare for the people who have tried to go there." Thorns has appraised 45 commercial properties since the storm, and most business owners have told him that they used personal savings, insurance money and occasionally local bank loans to get on their feet.

Crichton Brown, managing director with Advantage Capital, a venture capital firm, is looking to invest in New Orleans, where he says the scarcity of capital is manifest: "We hear it every day in the elevator. [But] venture capital firms are very focused and do less than 5% of all deals. We're not the panacea."

It's not hard to understand why lenders are skittish. Basic services in many parts of the city remain scarce. Trash collection happens once a week, versus twice a week before the storm, forcing many business owners to hire an outside contractor. Insurance costs have skyrocketed, and a lot of real estate is still in deep disrepair.

Still, gutsy entrepreneurs like Aaron Wolfson are willing to give it go. Two weeks before the storm hit, Wolfson opened a cooking school called Savvy Gourmet. He has since pledged his house and investment accounts and has tapped insurance money and a grant from Idea Village to keep the school going.

When Wolfson sought to open up a complementary business, Savvy Kitchens, a restaurant kitchen design firm, startup capital was nowhere to be found. The SBA turned him down, and he had no collateral left to secure a bank loan. He finally landed a $15,000 loan at a 13.5% rate from Prosper.com, an online service that lets users bid for the privilege of lending money. He hopes to pay it back with his first kitchen, which should pull in between $20,000 and $80,000.

"It's a really hard place to get your hands on money if you don't have any already," says Wolfson. "It's like the Wild, Wild West down here. You have to go make it happen yourself."

The SBA also turned down Mona Baudy, the owner of the floral shop Mona's Accents. "They felt I couldn't pay the money back," she says. Baudy reopened the store she had been running for the past seven years using her insurance money and personal savings. While she doesn't have much competition these days from local florists, she has had to plow a majority of her sales, near pre-Katrina levels, into repairing her store, which was under several feet of water.

This fall the government aims to accelerate the recovery by disbursing nearly $10 billion to Louisiana homeowners in the form of $150,000 checks to rebuild their homes as part of the Road Home program. If all goes well, that influx of bodies--both workers and shoppers--should kick-start capital investment. "Before you can go forward as a small business owner, you need to know whether anybody's going to be living around you," says Hilton Bell, a New Orleans-based attorney with Milling Benson Woodward.

Tim Ryan, an economist and the chancellor of the University of New Orleans, has no doubt that entrepreneurs will be drawn to the reconstruction--though he does question whether they'll be able to stay afloat. "We're going to see thousands of entrepreneurs," he says. "Our challenge is keep those businesses sustainable."

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