The late-night TV infomercial is so alluring: "Come to our seminar and locate out how you'll be able to get your federal government grant to begin a tiny enterprise!" a breathless announcer intones. "Just $300." A smiling entrepreneur assures in a taped testimonial: "I got $40,000 for my modest 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 one 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 no cost govt dollars - which doesn't exist. Why are men and women who supposedly desire to be hard-headed, no-nonsense business enterprise kinds so gullible? This can be a subject the Smart Answers column has addressed prior to, but I periodically revisit it. That is simply because these aren't harmless hoaxes. Seminar sellers and e-book hucksters routinely con individuals into shelling out hundreds of dollars to hear lectures or purchase directories that contain details readily accessible (yes, genuinely totally free!) in any public library or on the web.
"I've been working in small-business development 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 in the University of Southern California. "Interest and calls peak when some new book or ad kicks in."
"BRIGHTEST TECH MINDS." Common sense and also the most fundamental awareness of company principles ought to tell entrepreneurs that no 1 besides Mom and Dad (perhaps) will give you no-strings income to begin a for-profit business. "If the authorities was inside the position of providing all with the funds free of charge to individuals who start out their own companies, we wouldn't last lengthy," says Mike Stamler, a spokesman for the U.S. Tiny Company Administration in Washington, D.C. "Not to mention that the American people today would never stand for the government setting individuals up in company at no price, 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'll find a few extremely specific grants for modest enterprises. A look at the details shows the money is hardly totally free. It comes with a host of restrictions and quid pro quos. As an example, some local agencies give tiny grants to enterprises that locate in poor areas and guarantee jobs to folks in an underemployed community, says Phil Borden, director with the Women's Enterprise Growth Corp., a Long Beach (Calif.) nonprofit enterprise assistance center.
You will discover also some very restrictive, difficult-to-obtain grants given to little companies to exploration new technologies for the authorities. "There is some thing referred to as the Little Company Innovative Analysis (SBIR) program that gives entrepreneurs as much as $100,000 to research an thought that is considered promising and up to $1 million to create products from it, if the exploration pans out," Borden explains. "The problem is, the promising ideas have to do with things like how to capture a satellite in orbit and repair it. The people who compete with intricate, detailed proposals for these grants are experts in engineering and science and have the brightest technology minds within the country. The notion that this kind of funds is accessible to folks off the street can be a joke."
Prepared VICTIMS. Still, the free-money hucksters uncover ready victims due to the fact folks need to believe there's a way around the hard work of raising capital. "So a lot of folks say they heard it from a friend or saw it on TV. Of course, they've in no way really met anyone who got any cost-free dollars. It becomes like the Holy Grail of modest company, and lots of entrepreneurs get caught up in this concept that it's 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 with the heart of it implied that these grants were there, but the government didn't wish to let everybody know about them," Stamler recalls. "He told people not to take 'no' for an answer when they known as 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 entrepreneurs? Listen closely, Stamler says. They usually say they "got" so much govt dollars for their little business - they don't say how. Most of those featured entrepreneurs 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 little business, you will find numerous sources of loans or equity financing for startups. "Money's not that tough to get from friends and family if you've got a truly 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 numerous millions to get off the ground.
As Jim Weidman, spokesman for the National Federation of Independent Organization points out: "Most new corporations are started with a really modest amount of funds, around $5,000. So people today come up with it out of their personal savings or borrowing from their relatives, unless they are buying an ongoing enterprise or starting a company that needs plenty of initial funding for inventory, working capital, or buying or leasing a building."
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