Tax credits help those who help themselves

    The state of Iowa has a number of tax credits available to small businesses to help them get started and to help them succeed once they?re off the ground. Washington Economic Development (WEDG) director Ed Raber said that while a tax credit can help a business along, entrepreneurs should not think of it as a silver bullet.

    Raber said that if he meets with a business owner and the first thing the owner asks him is what tax breaks are available, he said that sends up red flags.

    ?What I want people to say is, ?I need help developing a good solid business plan that I can take to my lender to help them want to fund me,?? said Raber. ?The No. 1 thing that start-ups need to do is talk to their business partners, who are their lenders. They need to talk about their business plan with a CPA, who does their taxes.?

    Raber said that after the entrepreneur has developed a business plan, he may notice a gap in their funding stream. This is where the Small Business Administration (SBA) and tax credits can play a role.

    One of the programs available to start-ups is the ?Save Our Small Business Fund,? administered by the Iowa Small Business Loan Program. That fund provides low-interest loans from $2,500 to $50,000 to Iowa businesses with 35 or fewer employees. In order to qualify for this loan, a business must have already received assistance in the development or expansion stage from a small business development center or from a qualified consultant. Additionally, the business must not be contemplating bankruptcy.

    Raber has become involved in the small business fund, and said it has the potential to help a wide cross-section of the population. 

    ?The state?s goal is to get small businesses to pull the trigger and do a project,? said Raber. ?The state does that by giving businesses an incentive to take out a loan.?

    For many businesses, the tax credits awarded by the state are nowhere near enough to allow them to expand their business.    

    ?We struggle with entrepreneurs whose next step requires an investment of $3 million,? said Raber.

    Raber said he just spent a day with an entrepreneur who was trying to start a business. He was having a hard time finding enough cash to pay for his start-up costs. Raber said the equipment he needs to make his product costs $2 million. Raber said tax credits are a small piece of the puzzle when considering how to finance a business.

    ?I talked to a guy who was thinking of relocating to a different community because it had different standards for financial assistance,? said Raber. ?The maximum amount of financial assistance was going to be relatively small. Are you really going to relocate because you might get $50,000 from the state if the project is $3 million??

    The climate for young businesses has not been good lately, said Raber.

    ?I think it has been brutal for small businesses,? he said.

    Nevertheless, he remarked that there are bright spots ? that some sunlight is breaking through the clouds.

    ?The business people I talk to who are doing OK are the ones who work with their lender and CPA about how to manage their expenses and how to make sure they?re getting paid,? he said. ?How do we make sure we?re networking the right way, or how are we tweaking our market? The best thing about this area is that there are good business partners to act as mentors on these matters.?