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)”.