Businesses seeking traditional loans and other assistance to start a new venture have another avenue to explore thanks to the steady popularity of public funding.
With a range of capital options available through federal and state government programs, as well as local public funding, businesses enjoy a little more flexibility when it comes to finding the funds to help get them started.
Baker Tilly, a national accounting firm with an office in York, began focusing on the search for public funding in the early 2000s, said Jeff Horein, president of Baker Tilly Capital. Horein and his team work in a division that helps businesses find capital, particularly through public funding.
There are three main types of public funding available to businesses, Horein said.
The first one that most people think about is entitlement programs.
These programs are offered through the government or taxing authorities and take many forms. One that’s popped up for Baker Tilly in the past is the base relocation program, which helps businesses that create jobs in areas where a military base might have been closed. If a business meets certain criteria, it could get up to $500,000 in public funding, he said.
“There are thousands of programs out there just like that one,” Horein said.
The second public funding option is federal tax credits. Often offered on a competitive or discretionary basis, these programs funnel aid to businesses that are planning to address community needs, such as access to fresh food.
A federally developed map, for example, shows the placement of grocery stores, Horein said. If a business invests in an area where fresh food isn’t readily available, there could be quite a bit of money available to assist it.
That type of assistance also can apply to health care facilities. Building something for the good of the community, such as a hospital or assisted-living facility in areas where they don’t exist, might help a business qualify for federal tax credits.
According to the Baker Tilly website, one of those programs is the New Markets Tax Credit program, a federal tax credit that can assist a company with up to 23 percent of a project’s total cost. Site selection teams, such as the one at Baker Tilly, can help businesses compete for such credits, with advice as simple as moving a project’s proposed site across the street so it is in an area that has a need for that type of business.
The third type of public funding is a negotiated tax credit, Horein said. While state governments gain revenue from property taxes, some governments will waive a portion of taxes for a limited amount of time in order to get a project off the ground.
In the past five years, Baker Tilly has helped close $3.8 billion worth of tax credits, amounting to about $8 billion worth of building projects, Horein said. They include everything from grocery stores to factories, hospitals, libraries, charter schools, public facilities and entertainment venues.
One step in finding these funds is getting started early, said Jeff Vrabel, a partner with Baker Tilly. Businesses must push the fact that, without support, a certain project would not be completed.
“It’s important to present to the government what you’re doing and how you’ll impact the community,” Horein added. “If you already have a letter of intent and you’ve signed a lease, it’s tough to tell the government the project can’t be done but for their support.”
The whole process must be integrated, Vrabel said, where clients, professional advisers and government entities work together to take a project’s tax implications into consideration.
“Most projects will require additional funds, such as bank financing,” Horein said. “You never do something just for the taxes, but for many businesses it’s a great way to get projects started and moving.”