|
Small Biz Adviser: Expect a hand,
but not a handout from the government
Dear Small Biz Adviser
I need information on how to get a government
grant or loan for small business. The type of business is with CASI
photo-creations system. My name is Lynn and I want to start my own
business. Can you help by sending me some information, please?
Thank you
Lynn
Dear Lynn:
I often receive questions about government
loans and grants. Apparently, it warrants a review of some basic
facts about this often-elusive source of funding.
Before addressing the government loans and grants,
though, I need to review some basic facts about the documents you
need to gather before submitting an application.
First, you need to develop a business plan.
This document outlining the process by which you plan to start and
operate the business is just as standard as the loan application
itself. To develop that plan you have the following options:
- Purchase one or more of many publications
from a local bookstore, review it and prepare your own plan using
the word processing, spreadsheet and graphics applications in
your office suite application, assuming you have a computer and
the necessary software.
- Purchase one of several business-planning
software applications on the market and prepare your plan with
one of those templates.
- Contract the services of a business planning
professional to assist you or take charge in developing the plan
with your assistance.
Do not expect this plan to be written for you
by any of the traditional, government-subsidized, business assistance
programs. But Small
Business Development Centers, SCORE
chapters and the Women's Business Centers do provide workshops
on small-business startups and business planning at little or no
expense. And their counseling is free. Additionally, there are the
lesser-known Minority
Business Development Centers and Native
American Business Development Centers, should you qualify for
their programs.
I could now go on and simply describe government
loans and grants, but that would be an injustice. You need to know,
from the outset, there are obstacles to be overcome:
- Having no prior entrepreneurial experience
will go against you when applying for a loan or grant, government
sponsored or not. You represent a higher risk.
- You must be prepared to cover at least 50
percent of the startup costs, especially if you have no prior
entrepreneurial experience when applying for a loan.
- Bad credit history will make things more
difficult. You would have to describe and substantiate some previous
experience, like divorce and medical bills, for which you had
little or no control, and it resulted in the bad credit history.
Still, it is not a guarantee bad credit will be ignored.
- The business plan will have to be substantive,
demonstrate there is a market for your product, and that you have
a promotional strategy that will succeed when encountering competition.
- You need collateral for loans. Anticipate
at least 115 percent of present market value on acceptable collateral.
In other words you will need about $1.15 or more of acceptable
collateral for each $1.00 of loan proceeds.
Some consultants in my field tend to paint a
rosier picture. I am not trying to discourage you, but it would
be wrong not to submit a reality check for your consideration. If
you are not deterred, then let us proceed.
What most people call "government loans" are
not loans from the government. For the overwhelming part, they are
government guarantees against defaults to the lending institution
that is issuing the funds. You still have to convince a private
institution to give you the loan.
Classically, the Small Business Administration
will cover 70 percent to 90 percent of the loan proceeds. In other
words, if an SBA-sponsored loan is defaulted, the SBA will pay that
amount to the bank for the respective proceeds it cannot collect
from the disposition of collateral.
As for loan proceeds directly from the federal
government, I only know of one -- the Handicapped
Assistance Loan program (HAL). The title is pretty self-explanatory.
And finally, there is the hot subject -- government
grants.
If you are referring to grants directly related
to providing funds intended specifically for the startup of a for-profit
venture, I know of none.
What I do know is that plenty of people will
try to convince you otherwise. I'm sure you've come across late-night
advertisements or come-ons over the Internet: enthusiastic but vague
promoters who tell you fabulous wealth could be yours for the asking
-- if you pay them for the book or video that describes the secret
path to government giveaways.
Sorry. It doesn't exist. The government has
a lot of ways it tries to assist businesses, but handing out money
because you ask and you're a nice person isn't one of them.
There are federal, state and local small-business
assistance programs for businesses moving to or starting in economically
deprived business zones, for example, but I strongly urge you to
visit the local economic development office for your city or county.
They will have the relevant information if it exists in your area.
I do hope this provides you with some direction.
Bankrate.com writers base their answers on our editorial
content and advice of financial professionals. We make no claims
or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
|
