The late-night TV infomercial is so alluring: "Come to our seminar and uncover out how it is possible to get your federal government grant to start off a little company!" a breathless announcer intones. "Just $300." A smiling entrepreneur assures in a taped testimonial: "I got $40,000 for my modest business enterprise!"
The bright, red words: "Free Money!" fill the screen. It's 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 business owners and would-be entrepreneurs who can't wait to get their hands on that free of charge government funds - which does not exist. Why are folks who supposedly would like to be hard-headed, no-nonsense organization types so gullible? This is often a subject the Smart Answers column has addressed prior to, but I periodically revisit it. That's because these aren't harmless hoaxes. Seminar sellers and guide hucksters routinely con folks into shelling out hundreds of dollars to hear lectures or buy directories that contain information readily available (yes, truly 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 by no means goes away," sighs John Rooney, a professor in the Lloyd Greif Center for Entrepreneurial Studies with the University of Southern California. "Interest and calls peak when some new guide or ad kicks in."
"BRIGHTEST TECH MINDS." Widespread sense and also the most fundamental awareness of organization principles need to tell business owners that no a single besides Mom and Dad (perhaps) will give you no-strings dollars to start off a for-profit company. "If the govt was within the position of providing all from the funds totally free to men and women who start off their own businesses, we wouldn't last extended," says Mike Stamler, a spokesman for the U.S. Little Company Administration in Washington, D.C. "Not to mention that the American people today would never ever stand for the government setting people 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 will find a few extremely particular grants for tiny organizations. A look at the details shows the cash is hardly free of charge. It comes with a host of restrictions and quid pro quos. For example, some local agencies give tiny grants to businesses that locate in poor areas and guarantee jobs to folks in an underemployed community, says Phil Borden, director from the Women's Enterprise Development Corp., a Prolonged Beach (Calif.) nonprofit organization assistance center.
You'll find also some very restrictive, difficult-to-obtain grants given to smaller organizations to research new technologies for the authorities. "There is something known as the Tiny Business enterprise Innovative Exploration (SBIR) program that gives entrepreneurs up to $100,000 to analysis an strategy that is 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 you can capture a satellite in orbit and repair it. The men and women 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 money is available to folks off the street is a joke."
Ready VICTIMS. Still, the free-money hucksters come across prepared victims since folks would like to believe there's a way around the challenging work of raising capital. "So a lot of people say they heard it from a friend or saw it on TV. Of course, they've never in fact met anyone who got any no cost funds. It becomes like the Holy Grail of little company, and loads 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 on the heart of it implied that these grants were there, but the federal government didn't wish to let everyone know about them," Stamler recalls. "He told people today to not take 'no' for an answer when they called us."
Rooney says he once ordered a "free-money" ebook advertised on television.The author claimed each and every 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 income for their tiny 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 smaller company, you will find quite a few sources of loans or equity financing for startups. "Money's not that tough to get from friends and family if you've got a actually good notion," 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 a lot of millions to get off the ground.
As Jim Weidman, spokesman for the National Federation of Independent Business enterprise points out: "Most new companies are started with a quite modest amount of dollars, around $5,000. So people come up with it out of their personal savings or borrowing from their relatives, unless they are buying an ongoing enterprise or starting a business enterprise that needs plenty of initial funding for inventory, working capital, or buying or leasing a building."
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