If you believe that, we have a bridge in Death Valley we'll sell you ...

Nearly every day a Small Business Development Center (SBDC) office or the Small Business Administration (SBA) gets a call from someone who has responded to an ad that implies there is free money available to start a business.  It just isn’t true.  If it were, the people who work in those offices would all have one of those wonderful grants and be starting their own businesses. 

What really happens is that those folks at  SBDC’s all over the country spend a lot of their time trying to keep hopeful entrepreneurs from getting ripped off by providing real information about this sinister scam.   

Yes, there is grant money available from private foundations and government entities.  No, it is not available to individuals to start for-profit businesses.   

Often these “Free Money” ads use the words “grants” and “loans” together, as though they are the same.  They aren’t.  Don’t fall into that trap.  Grants don’t have to be paid back.  If you want grant money to start a business, you don’t qualify.   

Loans have to be paid back.  Any bank, SBDC or SBA office can tell you about the various business loan programs that are available. Providing that information to you is free of charge.  

Why do these scams continue to spread?  It’s because there are so many people who sincerely want to start a business, yet don’t have the money.  These kinds of hopeful entrepreneurs fall prey to ads that promise a ‘free’ solution. 

Following is a story that appeared nationally on February 8, 2001, in the Chronicle of Philanthropy, an industry publication that serves the various grant-providing foundations. 
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By Debra E. Blum 

Disabled and on welfare, Bruce Eckelberry could not resist the magazine advertisement he saw a couple of years ago touting ‘free cash grants’ from foundations across the country.  He mailed $19.95 to the company that promised to match him with grant makers that might give him the $23,000 he needed to buy a trailer home and start a business. 

Mr. Eckelberry, who has not had a job since he injured his back in 1988 working as a truck driver, received a list containing the names and addresses of more than 100 foundations that, the company said, would be most likely to provide him with the money.  He sent grant requests to each of the organizations.  None offered him any money, and few, Mr. Eckelberry later found out, make grants or loans to individuals for any reason.

“It was all a farce”, says Mr. Eckelberry, who lives in Milaca, Minn.  “I was out there asking for help, but I was really being taken advantage of.”

Mr. Eckelberry is not alone.  Tens of thousands of consumers around the country have been duped over the last few years by a variety of companies that together are making millions of dollars touting what they call cash-free grants or grant-matching services.  Similar businesses have cropped up before, but the scam appears to be spreading as a growing number of companies copy the lucrative efforts of others. 

Many of the ads make false or deceptive claims, and thus may violate federal mail and wire-fraud laws, as well as a host of federal, state, and local criminal statutes.

 Some companies say they will refund the fees of anyone who doesn’t receive a grant.  However, collecting the refund often proves impossible.  

One grant-matching operation in New Jersey was collecting as much as $30,000 per week from consumers when a court ordered the company closed last summer pending a trial on federal fraud charges.  The company, called Cash Free Grants, in east Windsor, N.J., had been charging people up to $49 apiece for foundation lists.  A trial in the case has not yet been scheduled. 

Law-enforcement officials have shut down at least three other grant-matching operations in the last two years – in Florida, Nevada, and Ohio.  Unfortunately, similar companies continue to thrive, law-enforcement and foundation officials say. 

Law-enforcement officials have shut down at least three other grant-matching operations in the last two years – in Florida, Nevada, and Ohio.  Unfortunately, similar companies continue to thrive, law-enforcement and foundation officials say. 

“Suffice it to say that when you close down a scam in one place, another pops up somewhere else.” Says Jane C. Nober, special counsel at the Council on Foundations, an association of grant makers in Washington.  “It’s an easily replicable scam and people are seeing others make money from it.” 

In Mr. Eckelberry’s case, the State of Minnesota stepped in to charge the company whose ad he had answered.  Instead of receiving a foundation list tailored for him, Mr. Eckelberry received the same list that the company sent to all its customers.  Moreover, most of the foundations on the list do not make grants to individuals for personal use. 

Most foundations included on the grants lists give money only to nonprofit organizations, not to individuals.  The few grants available to individuals are for scholarships or fellowships intended for specific educational purposes.  Recipients must meet a variety of specific criteria, such as being from a certain area or following a particular course of study. 

Most federal grants are awarded to other federal agencies, states, cities, colleges and universities, and research organizations.  These grants will be used for major projects such as a county-wide flood control project or a state-wide program to re-train displaced workers. 

If you want to do some checking on your own, visit the following Web sites  and documents:

Along with the action by law-enforcement officials in several states, the Federal Trade Commission is cracking down on grant scams. Click on the link to visit their site.

Reports on some of larger companies that are pitching “Free Money” books and seminars can be found on the National Better Business Bureau site http://search.bbb.org/national/search.html.  However, many companies are operating under the radar of the Better Business Bureau, so you won’t find them in the Bureau’s reports. 

If you are dissatisfied with a company that sold you books or a seminar, contact your local Better Business Bureau and your state’s Attorney General’s office.  You can find your closest BBB through the national Web site at www.bbb.org or in your phone book.   

The smartest thing you can do is to stay out of this trap in the first place.  The bottom line is that grant money is not available to individuals who want to start for-profit businesses. Your chances for getting a grant to start a for-profit business are about as good as your chances for buying the Brooklyn Bridge. 

Perhaps you've seen the advertisements or e-mail spam that promise, "Receive Free Small Business Grants to start virtually any type of business. Results Guaranteed!" The ads typically claim that "foundations can be a better source for financing than banks"; that "we've taken the guesswork out of free business grants"; and that "anyone can get an interest-free cash grant."

Applicants may be asked to send an application fee ranging from $20 to more than $100. The grant advertiser promises that the business owner's financial needs and requirements will be matched with the most suitable private foundations. Or they may promise to provide a list of available grants. These promises rarely, if ever, pan out. If the business owner does receive anything in return, the materials generally consist of a list of agencies and foundations to which they must write and request an application.

Information on private foundation grants is available at no cost from most public libraries. Idaho and Oregon have regional or state economic development offices that can direct you to legitimate funding programs for which you might qualify. Generally, obtaining a grant is a complicated process, requiring documentation and research. The vast majority of foundations require that grant applicants meet very specific guidelines and that the funds be used for specific projects supported by the foundation.

Another twist on the "free grant" scam involves scam artists claiming to be affiliated with the government. Business victims in several states report receiving phone calls from "federal government" officials. Those called were advised that they "qualified" to receive "free grant money" because they had paid their taxes on time or had met unspecified criteria. Some victims said they had been asked to provide their checking account or bank routing numbers so money could be deducted from accounts and they could receive the "free grants" immediately.

The government does not contact people to offer them money. If anyone does happen to qualify for a government grant of some type, the government does not request payment for it. Business owners can research, for free, information on government grant programs at the U.S. government Web site, www.grants.gov.

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