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I Want Free Money

The late-night TV infomercial is so alluring: “Come to our seminar and come across out how you are able to get your authorities grant to start a small enterprise!” 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 is an old story, and one particular that makes small-business consultants, counselors, and advice columnists (this a single 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 authorities cash – which doesn’t exist. Why are folks who supposedly need to be hard-headed, no-nonsense business enterprise sorts so gullible? This is often a subject the Smart Answers column has addressed prior to, but I periodically revisit it. That is 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 details readily available (yes, actually for free!) in any public library or on the web.

“I’ve been working in small-business growth 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 at 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 fundamental awareness of enterprise principles really should tell business owners that no 1 besides Mom and Dad (maybe) will give you no-strings cash to start out a for-profit enterprise. “If the authorities was within the position of providing all with the funds totally free to folks who start out their own organizations, we wouldn’t last long,” says Mike Stamler, a spokesman for the U.S. Modest Organization Administration in Washington, D.C. “Not to mention that the American folks would never ever stand for the govt 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’ll find a few extremely specific grants for small enterprises. 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 companies that locate in poor areas and guarantee jobs to individuals in an underemployed community, says Phil Borden, director from the Women’s Enterprise Advancement Corp., a Extended Beach (Calif.) nonprofit enterprise assistance center.

You’ll find also some quite restrictive, difficult-to-obtain grants given to little enterprises to research new technologies for the authorities. “There is something known as the Tiny Organization Innovative Research (SBIR) program that gives entrepreneurs up to $100,000 to analysis an thought that is considered promising and up to $1 million to create products from it, if the investigation 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 type of income is readily available to folks off the street is usually a joke.”

Prepared VICTIMS. Still, the free-money hucksters locate prepared victims simply because folks need to believe there’s a way around the challenging work of raising capital. “So quite a few people today 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 of charge money. It becomes like the Holy Grail of modest organization, and lots of business owners 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 govt didn’t would like to let everybody know about them,” Stamler recalls. “He told folks to not take ‘no’ for an answer when they known as us.”

Rooney says he once ordered a “free-money” guide advertised on television.The author claimed every single entrepreneur was entitled to a federal government grant. Rooney received a directory of farmer’s subsidies, Housing & Urban Growth 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 modest business 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 little business, you can find a lot of sources of loans or equity financing for startups. “Money’s not that difficult to get from friends and family if you’ve got a truly good concept,” 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 quite a few millions to get off the ground.

As Jim Weidman, spokesman for the National Federation of Independent Business points out: “Most new organizations are started with a extremely tiny 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 lots of initial funding for inventory, working capital, or buying or leasing a building.”

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