By Karen E. Klein Q: How do I go about getting a government loan to start the small business I've always dreamed of owning? Is it true that the government gives away money and that all I need to know is where to apply and which forms to fill out? -- S.N., Alabama.
A: This question, like so many urban legends, just won't go away. Smart Answers has answered it before, but not for a year or so, so maybe it's time to go over the facts once again. Doing so won't stop the scam artists, but it might save one or two aspiring entrepreneurs being suckered out of valuable cash that they might otherwise invest in their startups.
We'll start with your second question: Is it true that the government gives away money? No. You can buy all of the books and directories that are hawked on late-night TV, and which purport to unveil murky secrets about forms and applications, but not one of them will do a bit of good. Not one publication will unlock Uncle Sam's coffers and deliver that free money you're looking for. "Free money doesn't exist," stresses veteran Small Business Administration spokesman Mike Stamler. The SBA fields countless queries about where to get "free money" or a "government grant,"adds Stamler, but the answer is always the same: It just isn't available.
Now for your first question: How do you go about getting a government loan? The SBA does offer loans to small businesses and startups, but the key word is "loan". That means the money has to be repaid on a schedule and with interest. In the majority of cases, Stamler says, the SBA's programs back entrepreneurs with loan guarantees by working in conjunction with commercial lenders, such as local banks. "Typically, the borrower or applicant would not be able to secure a loan without that SBA guarantee," says Stamler, who adds: "In about half of our loans, there's no paperwork required beyond the forms that you have to fill out for the bank."
PAYBACK TIME. All the information about loans and how to take advantage of them, plus lots of great background, worksheets, and articles about small-business ownership, is available on the SBA Web site. Or, you can inquire at your local bank about SBA loan guarantees and how to qualify.
Why does the rumor about free money continue to circulate, despite the obvious absurdity that Washington would want to dole out cash to any and every wanna-be-entrepreneur in the country? "There are people out there making a living by convincing people this is true and selling them information to this effect," Stamler says. So what are they really pitching on those high-volume, late-night ads? Directories of government-agency contact information and databases that cost $45 to $100, are misleading, and repackage information that is readily available -- for free -- by contacting the agencies directly, Stamler says.
"There's a very strong entrepreneurial spirit among Americans and there are a lot of people interested in starting a business. It's just sad that so many people think the only way they can do it is by getting free money." Stamler notes. "Especially right now, when interest rates are low and loans are so reasonable -- it's almost like the banks are giving away the money." The only difference between the genuine article and those bogus free-money guides: As with all loans, it has to be paid back. After all, that's what "borrowing" means.
Have a question about your business? Ask our small-business experts. Send us an e-mail at email@example.com, or write to Smart Answers, BW Online, 45th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally. Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.