Where and how do you apply for business funding
through various federal and state programs? My general response to
these questions is, Yes, government funding is out there, but
understand the specific stipulations and restrictions that apply to
securing this money. Aspiring entrepreneurs need to be cautious
because grants, subsidies and low-interest loans come with strings
attached that narrowly define the types of endeavors in which the
capital can be used. There are no deals out there that simply
"give" you money to pursue a business idea. You have to
match your company to a particular program and then meet all the
prerequisite funding criteria. Here's an overview of what's
available. See what's offered, then see if your venture can
conform to fit those requirements.
According to the U.S. Office of Management and Budget, the
available federal grants-in-aid totaled $135.3 billion in 1990; the
projected figure for 2000 is just over $305 billion. Ready to get
your little piece of this pile of money?
The broadest category of funding is aimed at promoting
"affordable housing." Congress believes housing choices
support a thriving commercial sector for communities, so
they've created programs to encourage various types of real
estate development. The other big category of funding involves
stimulating certain kinds of small-business activity in depressed
locations.
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The largest grants and subsidies come in the form of
materials-cost subsidies, rent and mortgage subsidies,
reconstruction grants, and super-low-interest loans from the Office
of Housing and Urban Development to fix up residential properties
in depressed inner-city neighborhoods. The second largest category
involves federal support for enterprise zones (also called
empowerment zones), where government grants, subsidies and loans
are offered to certain minority-owned businesses or companies that
will conduct operations in what have typically been unattractive
inner-city locations.
The next largest category of government funds is available to
businesses that engage in certain types of health-care activities
(inner-city clinics, pharmacies), transportation (inner-city or
rural mass transit subcontracting), community and regional
development (child care, after-school facilities), and educational
ventures (job training centers). Congress makes these funds
available as an incentive to launch an enterprise that will
contribute to the commercial success of economically hard-hit rural
and urban areas. Loans and subsidies come from the U.S. Department
of Agriculture, the Veterans Administration, state housing
agencies, the Federal Housing Administration, state redevelopment
agencies, management and technical assistance for the
developmentally disabled, and the U.S. Department of Energy for
research or product development in the many areas surrounding
alternative fuels. And many programs simply provide a federal
guarantee for loans that individuals secure through banks if the
funds are for one of these specific agency projects. This is the
case when the SBA backs a small-business loan from a qualified
commercial bank.
For example, if you're ready to locate your small
manufacturing firm in a depressed downtown area and will agree to
hire and train local residents for your work force, you could
easily get a government grant for start-up costs, a subsidy for
your overhead costs of rent and utilities, and a 3 percent
long-term loan for equipment financing. If you want to purchase 20
inner-city, single-family row-house units (currently vacated and in
disrepair), and then fix them up and rent them (or sell them) to
minority families, there are plenty of federal grants for start-up
costs, low-interest loans to cover reconstruction costs, and
low-interest mortgage or rent subsidies to attract residents once
the project is completed.
The key for entrepreneurs is to know the kinds of businesses,
the exact locations for these, and the types of work force the
government wants to support. If you can match your venture to the
program's criteria, then you may have found funding for your
business idea.
David Newton is professor of entrepreneurial finance at
Westmont College in Santa Barbara, California. He is the
contributing editor on growth capital for Industry Week Growing
Companies and a moderator on small-cap stocks for eRaider.com. His
books include Entrepreneurial Ethics(Kendall-Hunt)
and How To Be a Small-Cap Investor(McGraw-Hill), named November 1999 book-of-the-month by
Money magazine and a 1999 Top 10 book by Forbes. His latest book
is How To Be an Internet-Stock Investor
(McGraw-Hill). He has written or contributed to more than 80
articles for publications including Entrepreneur, Your
Money, Business Week and Solutions, and has been a
consultant to emerging, fast-growth entrepreneurial ventures since
1984.
The opinions expressed in this column are
those of the author, not of Entrepreneur.com. All answers are
intended to be general in nature, without regard to specific
geographical areas or circumstances, and should only be relied upon
after consulting an appropriate expert, such as an attorney or
accountant.