The late-night TV infomercial is so alluring: "Come to our seminar and come across out how you can get your 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 smaller company!"
The bright, red words: "Free Money!" fill the screen. It is an old story, and one 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 cost-free govt dollars - which does not exist. Why are people today who supposedly desire to be hard-headed, no-nonsense enterprise sorts so gullible? This is really a subject the Smart Answers column has addressed before, but I periodically revisit it. That's since these aren't harmless hoaxes. Seminar sellers and ebook hucksters routinely con people today into shelling out hundreds of dollars to hear lectures or buy directories that contain info readily accessible (yes, truly for free!) in any public library or on the web.
"I've been working in small-business advancement for 16 years, and this urban legend by no means 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." Typical sense as well as the most fundamental awareness of organization principles really should tell business owners that no 1 besides Mom and Dad (maybe) will give you no-strings dollars to commence a for-profit organization. "If the federal government was within the position of providing all of the funds totally free to men and women who start off their own businesses, we wouldn't last long," says Mike Stamler, a spokesman for the U.S. Tiny Business enterprise Administration in Washington, D.C. "Not to mention that the American folks would by no means stand for the authorities setting individuals up in organization 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 can find a few highly specific grants for modest enterprises. A look on the details shows the cash is hardly no cost. It comes with a host of restrictions and quid pro quos. For instance, some local agencies give tiny grants to organizations that locate in poor areas and guarantee jobs to individuals in an underemployed community, says Phil Borden, director from the Women's Enterprise Development Corp., a Lengthy Beach (Calif.) nonprofit company assistance center.
You will find also some quite restrictive, difficult-to-obtain grants given to modest corporations to analysis new technologies for the govt. "There is some thing called the Little Company Innovative Research (SBIR) program that gives business owners as much as $100,000 to investigation an concept that's considered promising and up to $1 million to create products from it, if the analysis 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 individuals who compete with intricate, detailed proposals for these grants are experts in engineering and science and have the brightest technology minds inside the country. The notion that this kind of dollars is readily available to folks off the street is really a joke."
Ready VICTIMS. Still, the free-money hucksters come across ready victims due to the fact individuals need to believe there's a way around the very difficult work of raising capital. "So numerous people today say they heard it from a friend or saw it on TV. Of course, they've by no means actually met anyone who got any free funds. It becomes like the Holy Grail of little enterprise, and plenty of entrepreneurs get caught up in this notion 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 on 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 not to take 'no' for an answer when they referred to as us."
Rooney says he once ordered a "free-money" ebook advertised on television.The author claimed each entrepreneur was entitled to a authorities 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 govt cash for their little company - 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 enterprise, you will find several sources of loans or equity financing for startups. "Money's not that difficult to get from friends and family if you've got a really good idea," 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's not as though the average startup needs several millions to get off the ground.
As Jim Weidman, spokesman for the National Federation of Independent Company points out: "Most new businesses are started with a really little amount of dollars, around $5,000. So men and women 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 a lot of initial funding for inventory, working capital, or buying or leasing a building."
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