To freelance or not to freelance?

I have become an new product development contractor in the midst of the united states' current economic environment.(aka couldnt get a real job) (BSME graduate of 2009)

I would like to continue working as an independent contractor, as I have always wanted my own business. Its rough at the moment though. I have no capital to invest, just enough income to pay the bills, and not a single advocate(other than my customers that are getting a good deal).

I have applied to every mechanical engineering opening in the past year that fits my demographics. I have come to find that most if not all of the employers were "fishing" for someone with lots of experience for really cheap.

My question to you is, as the job market picks up, should i keep filling out applications to jobs i dont want, or should I risk it and work to improve my contracting business.

Thanks for your thoughts!