I Get Free Money

The late-night TV infomercial is so alluring: "Come to our seminar and find out how you may get your govt grant to start out a little organization!" a breathless announcer intones. "Just $300." A smiling entrepreneur assures in a taped testimonial: "I got $40,000 for my modest enterprise!"

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 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 people who supposedly would like to be hard-headed, no-nonsense organization sorts so gullible? This is a subject the Smart Answers column has addressed before, but I periodically revisit it. That's simply because these aren't harmless hoaxes. Seminar sellers and guide hucksters routinely con folks into shelling out hundreds of dollars to hear lectures or purchase directories that contain data readily offered (yes, seriously free of charge!) in any public library or on the internet.

"I've been working in small-business advancement for 16 years, and this urban legend never goes away," sighs John Rooney, a professor in the Lloyd Greif Center for Entrepreneurial Studies on the University of Southern California. "Interest and calls peak when some new ebook or ad kicks in."

"BRIGHTEST TECH MINDS." Typical sense and also the most fundamental awareness of organization principles really should tell entrepreneurs that no one besides Mom and Dad (maybe) will give you no-strings money to begin a for-profit business enterprise. "If the govt was inside the position of providing all with the funds at no cost to men and women who start their own businesses, we wouldn't last long," says Mike Stamler, a spokesman for the U.S. Smaller Enterprise Administration in Washington, D.C. "Not to mention that the American people would in no way stand for the authorities setting individuals up in business at no cost, 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 highly specific grants for tiny companies. A look on the details shows the income is hardly cost-free. It comes with a host of restrictions and quid pro quos. For example, some local agencies give tiny grants to enterprises 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 Prolonged Beach (Calif.) nonprofit business enterprise assistance center.

You can find also some extremely restrictive, difficult-to-obtain grants given to little businesses to analysis new technologies for the authorities. "There is some thing known as the Modest Organization Innovative Investigation (SBIR) program that gives business owners as much as $100,000 to study an notion that is considered promising and as much as $1 million to create products from it, if the research pans out," Borden explains. "The difficulty is, the promising ideas need to do with things like how you can 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 within the country. The notion that this type of dollars is readily available to folks off the street is really a joke."

Ready VICTIMS. Still, the free-money hucksters locate ready victims due to the fact individuals want to believe there's a way around the tough work of raising capital. "So quite a few people say they heard it from a friend or saw it on TV. Of course, they've never really met anyone who got any free of charge cash. It becomes like the Holy Grail of modest business, and loads of business owners 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 in the heart of it implied that these grants were there, but the authorities didn't wish to let everybody know about them," Stamler recalls. "He told men and women not to 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 federal government money 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 modest company, you can find several sources of loans or equity financing for startups. "Money's not that challenging to get from friends and family if you've got a genuinely 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 a lot of millions to get off the ground.

As Jim Weidman, spokesman for the National Federation of Independent Organization points out: "Most new enterprises are started with a incredibly little 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 organization that needs loads of initial funding for inventory, working capital, or buying or leasing a building."