SOME COMMENTS ABOUT GRANTS

It is not unusual for clients to come into SCORE asking about grants for starting their business. Most often the quest stems someone hearing on TV or radio or reading about grants in magazines and newspapers that there is a lot of unused grants available for new businesses.

As far as we know, there are no government grants to individuals for start-up unless they are for very technical research or urban development purposes. There are, however, some tax credits for new businesses that go into areas that have been designated as depressed and the business will be hiring people from that area that are sometimes referred to as grants.

When the term "grants" comes up, we believe what many people are asking about are loans. There is a difference between grants and loans. Grants (an asset on a financial statement), usually given for a specific purpose, most often for "the public good," do not have to be repaid. In essence, they are gifts from the government or private foundations that have set criteria to fit the goals or targets for accessing the grant. Loans, (a liability on a financial statement) of course, have to be repaid.

Loans are available from banks, credit unions, family, friends and, possibly, investors. With family and friends the loan should be done on a business-like basis just as if it were done with a bank where interest is charged and paid.

Many banks will make loans between $2500 to $100,000 with a simple application form. The interest rate will run about 5% above the Prime Rate.

If a bank does not want to take the risk by they will suggest the applicant apply for a US Small Business Administration guarantee. Loan guarantees tend to be needed for start up businesses and certain types of other businesses. It will cost an extra 2% for an 85% guarantee of loans under $150,000.00. A 75% guarantee for larger loans may call for a higher fee. In either case, a direct loan or a SBA Guarantee Loan the applicant will have to put up some of the money needed to start the business. This could be up to 33% of the total needed

Another method of financing would be to obtain a "Personal Equity Line of Credit" or "Personal Equity Loan" from a bank for the business. Put up equity, like your home, stocks, bonds and any other asset that is "titled." This will be easier and quicker to obtain plus the interest percentage may be less.

You can find information about grants from the business or government documents sections of most main libraries and from some college libraries. On the web you can get information at:

• http://www.lib.msu.edu/harris23/grants
• http://www.sba.gov/expanding/grants.html
• http://www.escus.org/flash/index.html
• http://fdncenter.org
• http://www.escus.org
• http://www.GuideStar.org

In either case, grant or loan, you will need to develop a business plan that tells the institution or lender what and how you plan to spend the money and, in the case of a loan, repay it. This information has been gathered from several sources and from SCORE members throughout the US.

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