Setting Yourself Up for Success: Funding Your Start-Up

The reason I most often hear when I’m talking to people who haven’t yet started their own business is they don’t believe they can afford it … and often they’re absolutely correct. Starting a business requires having both enough money and time to get it launched and keep it going while it grows.

Imagine my excitement when I learned about a type of program that not only matches an aspiring entrepreneur’s savings, but offers and requires courses in financial education. That’s exactly what Individual Development Accounts (IDAs) are for and they’re not limited to just business capitalization. They can also be used to save for a home or college. These special savings accounts match the deposits of low- and moderate-income people. For every dollar saved in an IDA, savers receive a corresponding match which serves as both a reward and an incentive to further the saving habit. Savers agree to complete financial education classes and use their savings for an asset-building purpose such as starting a small business.

According to Stephen Slivinski, a senior economist at the Goldwater Institute, data across the United States shows that a 1% increase in the rate of entrepreneurship in a state led to up to a 2% decline in the rate of poverty so it’s’ not surprising that forty states recognize IDAs and that contributions by donors to qualified IDAs are tax deductible.

IDAs are offered through partnerships between financial institutions (such as banks and credit unions) and local nonprofit organizations, or program sponsors. After signing up for the IDA program, each participant opens a savings account with the partnering bank or credit union. Account holders generally make monthly contributions to an account, usually over a period of one to four years, and their savings are matched by donations typically at a rate ranging from 1:1 to 3:1.  IDA accountholders receive regular statements detailing how much they have saved and the amount of match they have earned.

Eligibility for IDA programs varies from program to program but typically have some restrictions regarding income, the source of the savings, net worth and credit history.

To learn more about IDAs and ones that are offered where you live, just type, “How do I open an IDA in (your state)”.

Published by Leah Ward-Lee

Leah Ward-Lee, the author of "$1,000 Start-Ups", is a serial micro-entrepreneur. She opened her first business at ten after lobbying for and receiving a shoe shine kit for Christmas. She pulled her wagon through the neighborhood, going door-to-door, offering to shine her neighbor’s shoes for twenty-five cents a pair. Once her wagon was full, she took the shoes home and polished them. Unfortunately that business was short-lived. She hadn’t tagged the shoes and couldn’t remember whose shoes were whose, so her dad went with her to retrace the route until every pair was returned. Since then she’s had businesses developing and teaching college courses, instructing aerobic classes, owning half a plane that was rented to a flight and maintenance school, and renting homes. She’s also owned a consignment store, a gift shop, a gift basket business, a consulting firm, hosted The Executive Toolbox (a weekly radio show), and a publishing company. She also spent twenty years in the US Army, served as the Chief Information and Technical Officer for two major insurance companies, and has a second career as a management consultant. Leah resides in Dallas, TX and on Amelia Island with Sammy and Goliath, her two rescue dogs.

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