The late-night TV infomercial is so alluring: "Come to our seminar and come across out how you are able to get your govt grant to begin a modest company!" a breathless announcer intones. "Just $300." A smiling entrepreneur assures in a taped testimonial: "I got $40,000 for my tiny organization!"
The bright, red words: "
Free Money!" fill the screen. It is an old story, and a single that makes small-business consultants, counselors, and advice columnists (this 1 included) cringe. Whenever such ads run, we brace ourselves for calls and e-mail from entrepreneurs and would-be entrepreneurs who can't wait to get their hands on that totally free authorities money - which does not exist. Why are people who supposedly desire to be hard-headed, no-nonsense company varieties so gullible? This is really a subject the Smart Answers column has addressed before, but I periodically revisit it. That's simply because these aren't harmless hoaxes. Seminar sellers and ebook hucksters routinely con individuals into shelling out hundreds of dollars to hear lectures or buy directories that contain data readily accessible (yes, truly totally free!) in any public library or on the internet.
"I've been working in small-business improvement for 16 years, and this urban legend in no way goes away," sighs John Rooney, a professor in the Lloyd Greif Center for Entrepreneurial Studies on the University of Southern California. "Interest and calls peak when some new guide or ad kicks in."
"BRIGHTEST TECH MINDS." Common sense as well as the most basic awareness of organization principles should tell entrepreneurs that no one particular besides Mom and Dad (maybe) will give you no-strings income to start a for-profit enterprise. "If the authorities was within the position of providing all of the funds totally free to folks who start out their own companies, we wouldn't last extended," says Mike Stamler, a spokesman for the U.S. Smaller Organization Administration in Washington, D.C. "Not to mention that the American people would never stand for the federal government setting people up in organization at no cost, and all at taxpayer risk."
Yet, the myth persists. Like most con artists, the free-money hucksters take a grain of truth and distort it. You will find a few highly particular grants for smaller companies. A look in the details shows the money is hardly no cost. It comes with a host of restrictions and quid pro quos. As an example, some local agencies give tiny grants to organizations that locate in poor areas and guarantee jobs to folks in an underemployed community, says Phil Borden, director with the Women's Enterprise Advancement Corp., a Lengthy Beach (Calif.) nonprofit company assistance center.
You will find also some incredibly restrictive, difficult-to-obtain grants given to little companies to analysis new technologies for the federal government. "There is some thing known as the Smaller Company Innovative Research (SBIR) program that gives business owners up to $100,000 to analysis an notion that's considered promising and as much as $1 million to create products from it, if the investigation pans out," Borden explains. "The difficulty is, the promising ideas have to do with things like how you can capture a satellite in orbit and repair it. The folks who compete with intricate, detailed proposals for these grants are experts in engineering and science and have the brightest technology minds in the country. The notion that this type of money is available to folks off the street can be a joke."
Ready VICTIMS. Still, the free-money hucksters locate ready victims due to the fact people today need to believe there's a way around the difficult work of raising capital. "So numerous men and women say they heard it from a friend or saw it on TV. Of course, they've never ever really met anybody who got any free income. It becomes like the Holy Grail of smaller business, and plenty of business owners get caught up in this concept that it is out there," Rooney says.
The true believers are amazingly persistent. "About six or eight years ago, there was a scam like this that produced a run of calls," says the SBA's Stamler. "The huckster at the heart of it implied that these grants were there, but the federal government didn't need to let everybody know about them," Stamler recalls. "He told people to not take 'no' for an answer when they called us."
Rooney says he once ordered a "free-money" book advertised on television.The author claimed each entrepreneur was entitled to a government grant. Rooney received a directory of farmer's subsidies, Housing & Urban Advancement programs, and government-loan applications.
What about those testimonials from happy business owners? Listen closely, Stamler says. They usually say they "got" so much administration dollars for their smaller enterprise - they don't say how. Most of those featured business owners have gotten small-business loans, he says. The SBA guaranteed more than $16 billion in loans during fiscal 1999 through its three major financing programs.
LEGITIMATE SOURCES. The irony is that in this boom time for modest company, you can find numerous sources of loans or equity financing for startups. "Money's not that challenging to get from friends and family if you've got a genuinely good strategy," says Rooney. "I've seen college students raise millions with their dot.com ideas. Why waste your time with the snake-oil salesmen when you could be talking to professionals who know what they're doing?" After all, it is not as though the average startup needs several millions to get off the ground.
As Jim Weidman, spokesman for the National Federation of Independent Enterprise points out: "Most new organizations are started with a very modest amount of dollars, around $5,000. So individuals come up with it out of their personal savings or borrowing from their relatives, unless they are buying an ongoing enterprise or starting a organization that needs a great deal of initial funding for inventory, working capital, or buying or leasing a building."