The Truth About Government’s Small Business FREE Money Programs

Q. I went to a “get rich quick” seminar and was told that there is tons of “free money” available for small business owners, and if I sign up for their big bucks seminar they will tell me how to get it. Can you help me get some of the big pie of free money?

A. Every so often this question comes around and I don’t want to burst your bubble but the government, as far as I know, is not really in the habit of giving out free money to start your business. There are a few programs that give extra tax advantages to businesses building in lower economic areas, high technology fields or hiring relocated, disabled or rehabilitated workers, that can be utilized to save you some bucks. For these types of credits check out federal, state, county, city and local governments for “tax credit”, “employment credit” or “empowerment zone”. To get you started you can check out the Welfare to Work credits (found at http://www.irs.gov/businesses/small/article/0,,id=1685 64,00.html) and the Empowerment Zone and Employment Credit (found at http://www.irs.gov/govt/tribes/article/0,,id=108424,00.ht ml).

These programs change frequently and have very stringent requirements about exactly when you must file paperwork or the credits are a “no go”. When I owned my cleaning business I got some really nice tax credits ($5000 back at taxes, if memory serves) for hiring a couple of great workers that had disabilities and were referred to me through a local government vocational rehab. And if you are going into a targeted field you may be able to get a grant for specific research or business development. You can check out http://www.grants.gov/ to see if something is appropriate for your business idea. However, most businesses “startup” using one of the 6 ways of financing below.

6 Ways of Getting Startup Dough to Launch or Re-Launch Your Business

Whether you are launching or thinking of re-launching your business, and you need some funds to get off of the ground here are some ideas about how others get the job done.

Buy an existing business on an owner contract. One way to start fast and furious is to buy an existing business on an owner contract. Owners looking for a quick sale may offer to sell on an owner contract where you make payments to them. Do your homework first, though. Just because the financing is right does not make it a good deal. Check out “The Complete Guide to Buying a Business” by Richard W. Snowden to see how to evaluate a business and be sure that you are getting a good deal.

Get a private business loan. Some banks will issue private business loans for startup, although you are going to want to pick the right bank, and be ready to be asked for some collateral, credit, money down, experience in the industry and some of the other things that banks always want. Picking a bank that wants small business owners as customers may be the key. With my cleaning business I had years of solid track record before applying for business line of credit and I first went to the wrong bank. After several weeks of chasing down papers and meeting with representatives they told me that they did not do loans for businesses like mine. Frustrated, I went to another bank that was looking for entrepreneur businesses, and with a signature on one form and 24 hours I got my loan. http://www.entrepreneur.com/has a very nice feature for finding small business-friendly banks.

Get a government business loan. The SBA (http://www.sba.gov/) is always a good source for looking for small business funding. What they offer changes frequently, but they can direct you to all kinds of funding sources, and their advice is free.

Find friends and family to be investors. Most businesses finance themselves with friends and family investors. Is this a good idea? It can be if you do it right. Make a formal pitch with a business plan to your potential investors. Tell them how much you are looking for in investment, your expected payoff schedule, how much stock they would own, and what level of involvement you expect in the business. Frequent reports and meetings on the status of the company, may ease their minds and their wallets.

Seek private investors. Don’t you just love the name “Angel investor”? It sounds like someone is coming down from the heavens to save you. And for some businesses that is what they do. At a private financing club presentation that I attended, I asked what is the difference between Venture Capitol and an Angel Investor. One of the key differences is the amount of money that we are talking about. VC’s are generally looking for emerging technologies needing funds of over $3 million, and often in the tens of millions. An Angel investor will invest anywhere from $10,000 to $1 million. The one resounding theme, however was that you need to be flexible and coachable on your business plan if you want this kind of private investment. VC’s and Angels are often intimately involved in the business attending meetings, receiving frequent status reports, owning stock and even making business decisions. A few places to look for investors is http://www.garage.com/, http://www.commonangels.com/, http://www.gobignetwork.com/, or local funding associations or networks.

Start from the dollars in your wallet. Starting from the few bucks in your own wallet is how most small service business owners that I know started their business. When I started my cleaning business I had $50 and a vacuum. It can work – with one catch. Startups need money to grow, and if you don’t have enough dough growth can be extremely slow. Also, the risk that you take starting with no capitol is that if there is an emergency of some kind (poor weather spell, bad luck with a dishonest employee, unfortunate results with a marketing attempt) instead of it being a small setback, and can mean life or death for the company since you don’t have the capitol to ride it out. So, my advice is that if you do start on a shoestring plan to take some of your first profits and put some away to reinvest in your business. That way it won’t take you 20 years to get out of the starting gate, and you can sleep at night knowing that you have a safety net. The amount that I liked to keep around was a minimum of a month of payroll and overhead.

Whatever source you choose, decide ahead of time how much money you will need, and have a solid plan about how you will best utilize your precious capitol. Success is often directly attributable to planning.