Hopes and Cures

The Times-Standard had a great piece over the weekend discussing when and how the Government gives away “free money.” The authors debunk these myths.  They also discuss the very real grant process that funds innovative new technologies.

They list and answer these myths:

Myth no. 1: Grants are cash money to start businesses. The government will give it to you – no strings attached — if you know the secrets. The government is willing to pay you to create jobs.

Myth No. 2: Entrepreneurs who are successful must have gotten some kind of break.

This one explains the SBIR system:

Myth No. 3: The government only helps big corporations. That is why there is no cash for me.

Truth: The U.S. Small Business Administration guaranteed loan programs for businesses are the federal government’s main activity to leverage business growth. These programs help lessen the greater risk business loans present for lenders. As a result, more entrepreneurs get funding for their businesses. These programs facilitated more than $16 billion in business financing in 2004. This type of loan still requires the borrower have credit, collateral and a plan for their business. You can find out more about an administration guaranteed loan for your business startup or expansion by asking your banker.

We started by saying that the “no grants for business startups” mantra was 99.7 percent true. That means that .3 percent of businesses could qualify for a grant to get started. Generally, for this to be true, you have to be a lab rat — or partnered up with one — who has research that could be commercialized in an area of interest to the federal government. Brake shops and herbalists need not apply. Each year more than $2 billion is awarded to small businesses by the eleven federal agencies participating in the Small Business Innovation and Research and Small Business Technology Transfer programs.

Under the SBIR/STTR Program, small businesses can receive up to $100,000 in Phase I funding to demonstrate the feasibility of a new technology and up to $750,000 in Phase II funding to develop field prototypes to validate the new technology. Phase III is then commercialization of the new innovation, and no federal funding is provided. California businesses receive more SBIR/STTR awards than any other state. Last year over 500 Phase I awards were made to California businesses.

The SBIR/STTR program is very competitive. On average, one out of 12 applicants receives funding under Phase I of the SBIR/STTR program. If a firm is successful in completing Phase I, their odds of obtaining Phase II funding are then approximately one out of two to one out of three. Companies are rarely successful in their first attempt at SBIR funding due to their lack of knowledge on how to put together a successful proposal.

With the exception of the highest-potential technology businesses, the bottom line on the free money from the government question is the answer our parents gave us years ago. When one of us wanted to buy X-ray glasses, mom said “if it sounds too good to be true, it probably is.”