By JONNELLE MARTE, The Wall Street Journal
At a time when many people short on income are calling on their inner entrepreneurs, some start-ups are finding relief in a little-known resource—individual development accounts.

These accounts, which have grown in popularity since their inception more than 10 years ago, aim to help low-income individuals purchase homes, pay for higher education or develop a small business. IDAs are typically offered by nonprofits, state or local agencies and low-income credit unions, which raise private funds and combine them with federal funds to match an account-holder’s savings.

While IDAs are most popular with aspiring homeowners, program coordinators say they’re seeing aspiring entrepreneurs – some of whom have lost jobs or taken big pay cuts – use the accounts to start enterprises with low upfront costs, such as catering, cleaning, landscaping and children’s day-care businesses.

Jenny Robinson was initially hoping to save up for a home in 2006 when she opened her individual development account at New Visions, New Ventures, a nonprofit community economic development organization in Richmond, Va. But after getting laid off from her job as an office-furniture salesperson in June 2008, her priorities changed. Ms. Robinson started her own business, Cracked Egg Bakery, selling homemade cheesecakes to two local restaurants. By February 2009, she had saved $2,000 in her IDA, and secured a matching grant of $4,000, which she then used to expand her at-home bakery…

In general, the total number of IDAs tripled to 44,000 in 2007 from 12,000 accounts in 2003, according to the latest data from the Office of Community Services, the agency within the U.S. Department of Health and Human Services that administers the IDA program. About 25% of roughly 45,000 accountholders nationwide were saving up to invest in small businesses at the end of 2008, up from 19% in 2004.

Andrea Levere, president of the Corporation for Enterprise Development, a Washington, D.C., nonprofit that works with low-income communities, says she expects that percentage to increase, especially as people who are laid off try self-employment.

The economic downturn, however, has made it more difficult for some organizations to collect the private funds they need to match federal funds, which have remained steady at about $24 million a year between 2008 and 2010. For instance, the New Hampshire Community Loan Fund, which administers the statewide IDA program, has had to eat into loan profits and potential grant money to cover part of the $200,000 in operational deficits over the past two years.

Still, many grantees have continued to find funding and are now opening new accounts at the same pace they did before the recession, if not more. Funding shortages forced Earn, a nonprofit in San Francisco that offers asset-building services in the Bay Area, to open 315 accounts in 2008, less than half of the 635 accounts opened in 2007. But the group rebounded last year, opening 611 accounts.

Because participants are required to write a business plan, IDAs help many people formalize small businesses they may have started without long-term goals in mind, says Earn president Ben Mangan. The group has helped 327 IDA savers invest $1.7 million in small businesses since 2002, more than participants saving for education or to buy a home…

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