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By Karen E. Klein

There's No Free Lunch — Most Entrepreneurs Have to Bootstrap or Borrow
Grants are for nonprofit concepts, or high-powered research

Q: I am a minority woman interested in starting a law practice with two other women. We are in need of startup capital, preferably grant money. Do you have any suggestions as to sources of funding?
--S.H., Newark, N.J.

A: The notion -- still surprisingly prevalent after years of ebbing political support for affirmative action or publicly funded community development -- that the government or private foundations give away "free money" to for-profit startups is a myth. Such entities typically channel their funds to nonprofit groups serving the community or to companies that do research and development feeding crucial government projects. If you are open to establishing your company as a nonprofit and are interested in providing legal services to an underserved group or community, you might qualify for funding from the private foundations or government entities already helping that population. After you're established as a nonprofit, you could later begin a for-profit side of the firm. A couple of caveats: You must truly be providing valuable services to people or businesses that need your help, and you must ensure that the nonprofit and for-profit sides of the company remain separate.

Get a directory of foundations, available at most large reference or university libraries, and read up on their missions, whom they are interested in serving, and how to write grant applications. If you find a good match for your location and interests, this would be one way to fill a community need and get your practice off the ground.
If you're not interested in going the nonprofit route, you'll need a loan to get started. Here also, there is help available -- both in arranging funding and in all kinds of good counsel. Visit your local U.S. Small Business Administration office and speak to a counselor at one of the SBA's Small Business Development Centers. Or find a business development program through a local university that works with startups. Experts at these places can put you in touch with community lenders, some of whom provide low-interest loans backed by SBA guarantees to low-income entrepreneurs or businesses that plan to locate in geographic areas that have been identified as undercapitalized.

The SBA has a loan guaranty program through which entrepreneurs who do not qualify for traditional bank loans can get funded with underwriting from the SBA, says D.J. Caulfield, a public information specialist at SBA headquarters in Washington. "If the SBA feels the enterprise is a reasonable venture, we place our exposure for the potential of a default at about 75% or 80%, and the bank underwrites the balance of that exposure," Caulfield explains. "Our loss rate is extremely low, so the program, called the 7(a) Loan Guaranty Program, has done quite well. And it is open to any business, not just minority- or woman-owned companies."

The American Bar Assn. provides information and advice on starting a law firm through its Law Practice Management Section, which can be accessed at the organization's Web site: It publishes a 376-page book, How to Start and Build a Law Practice, that can be ordered at the site or from the group's Chicago headquarters at (800) 285-2221. The book is $65 in hardcover and $39.95 in softcover.

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