Governments should provide financial support to new businesses (business start-ups) not only because it benefits those small companies, but also the whole country’s economy benefits and the overall well-being of all citizens rises as well.
How different government support small new companies varies from country to country. And the support can even be differentiated within the country, depending on the activity of the business and its location. For instance, new companies in impoverished areas of the country may receive more support than start-ups in developed rich cities.
Here is a short list of the most common types of government assistance for small businesses known to me.
Interest-free loans or low-interest loans. This kind of support allows a small business the chance to retain more profit in the business. Lower interest or no interest paid on a loan will increase net profit after interest and TAX. Net profit after interest and TAX can be either paid out to shareholders or kept in the business as retained profit. In this case, it should be used for expansion, or to meet working capital requirements.
Loan guarantee schemes. Loan guarantee schemes are government-funded programs that guarantee the repayment of a certain percentage of a bank loan, in case the business is not successful and fails. Because of ‘being backed-up by the government’, commercial banks are more likely to lend to newly formed businesses.
Lower taxation rates on profits in the early years. Similar to the first point, this will allow a small new company the chance to retain more profits in the business for future expansion in the next few years.
Grants. Grants are usually offered to eligible businesses as one-time payments and do not need to be repaid by the business. This might be a huge help for a small start-up that does not generate any significant sales revenue yet. However, grants are not always that easy to obtain. Governments tend to stimulate economic activity in poor regions or struggling industries that may be facing serious problems endangering the society.
Free rent for a certain period of time. In very economically-deprived areas, such as cities with high unemployment, governments may allow start-ups to operate on the government-owned land or use public buildings, which are currently empty, for free. If not for free, then rented to small firms at reasonable, below-market rent prices.
Free or heavily subsidized training for employees. Many new entrepreneurs cannot afford to train their personnel in marketing, production, keeping accounts and dealing with recruitment, training and motivating workers. Governmental organizations come with a helping hand to provide much needed assistance to train low-skilled workers. The government may also provide information and advice from specialist agencies that usually belong to The Ministry of Commerce.
Feel free to add more methods in the comments below the article. Your fresh ideas will be much appreciated!
