How to Form a 501(c)(3) Nonprofit Corporation

Here’s how to form a nonprofit corporation and receive a 501(c)(3) tax exemption.

Forming a nonprofit corporation is much like creating a regular corporation, except that nonprofits have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. Here is what you need to do:

  1. Choose an available business name that meets the requirements of state law.
  2. File formal paperwork, usually called articles of incorporation, and pay a small filing fee (typically under $100).
  3. Apply for your federal and state tax exemptions.
  4. Create corporate bylaws, which set out the operating rules for your nonprofit corporation.
  5. Appoint the initial directors. (In some states you must choose your initial directors before you file your articles, because you must list their names in the document.)
  6. Hold the first meeting of the board of directors.
  7. Obtain licenses and permits that may be required for your corporation.

Choose a Business Name

Before you form your nonprofit corporation, you need to decide on a name that complies with the rules of your state’s corporate filing office. The information packet you receive from the filing office should contain your state’s rules, but the following guidelines commonly apply:

  • The name of your nonprofit cannot be the same as the name of another corporation on file with the corporations division.
  • The name must end with a corporate designator, such as Corporation, Incorporated, Limited, or Corp., Inc., or Ltd. (This is required in only about half of the states.)
  • The name cannot contain certain words prohibited by the state, such as Bank, Cooperative, Federal, National, United States, or Reserve.

Your state’s corporations division can tell you how to find out whether your proposed name is available for your use. Often, for a small fee, you can reserve the name for a short period of time until you file your articles of incorporation.

tip Contact Your State’s Corporations Division
Your state’s corporate filing division, usually part of the secretary or department of state’s office, will often send you a packet of nonprofit materials that will be immensely helpful to you in forming your nonprofit. This packet may include sample or fill-in-the blank articles of incorporation, your state’s nonprofit corporation laws, a filing fee schedule, and forms and instructions for checking the availability of your proposed business name. Contact your state’s corporate filing office to obtain this packet.

In addition to confirming that another corporation in your state isn’t already using your proposed name, you must make sure your name won’t violate a trademark owned by another company (in your state or out of state). To do this, you’ll need to conduct a trademark search.

Once you’ve found a legal and available name, you aren’t usually required to file or reserve the name with your state — when you file your articles of incorporation, your nonprofit’s name will be automatically registered.

Prepare and File Your Articles of Incorporation

After you’ve decided on your business name, you must prepare and file articles of incorporation with the corporate filing office. This document goes by a different name in a handful of states; your state may instead use the term articles of organization, certificate of incorporation, certificate of formation, or charter.

Your state’s corporate filing office will usually provide you with nonprofit articles of incorporation — either a fill-in-the-blank form or a sample on which you can base your articles. Although preparing this document isn’t difficult, you do need to include specific language to ensure that you’ll receive tax-exempt status. Your state’s nonprofit formation packet, if available, may include the required information. If not, or if you need help understanding the requirements, consult a good legal self-help guide such as How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo), to make sure your articles comply with your state’s nonprofit law.

Apply for Your Federal 501(c)(3) Tax Exemption

After the corporate filing office returns a copy of your filed articles, you can submit your federal 501(c)(3) tax exemption application to the IRS. (The IRS requires you to submit a copy of your filed articles with your application.) This is a critical step in the formation of your nonprofit organization since most of the real benefits of being a nonprofit flow from 501(c)(3) tax-exempt status.

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Non Profit Fundraising – Your Annual Development & Fundraising Plan

A nonprofit organization’s year-long plan for fundraising and development is crucial. It can be an intensive and extensive project. So, where do you begin? Here are some tips & topics to get you started.

1. Have a Written Plan
An organization must have a written development and fundraising plan to be successful. Scraps of paper, napkins & post-it notes don’t count. The plan does not have to be an epic. In fact, if your organization is just starting out with a comprehensive fundraising & development plan, then consider a plan of ten pages.

2. State Your Goal Clearly
Sounds pretty basis, doesn’t it? Well, make sure you know the difference between your budget and your fundraising goal. And, make sure your entire leadership team is aware, understands and has buy-in in the fundraising goal. You may want to consider a multi-year plan or projections, as well.

3. Estimate Resources Required
Be sure to include an estimate of the amount of time the staff, board members and volunteers will need to spend to make sure your development and fundraising plan succeeds. Additionally, be sure to include the hard-costs you will incur, such as postage, website development/maintenance, and special events.

4. Create a Timeline
Create a timeline that covers the entire year, identifies specific events and identifies the individuals who will take the lead for each event or project. The timeline likely will change throughout the year; however, having an initial written timeline will increase your likelihood of success.

5. Identify Specific Funding Sources
Review your current funding sources. Look at the actual numbers–not what you think they are. Then, think creatively about how you might be able to leverage your current resources and expand your funding sources. Consider funding sources from:
–Individual Donors
–Foundation & Foundation Grants
–Special Events
–Government Funding
–Civic Groups/Churches/Universities
–Product Sales/Earned Income

6. Create an Evaluation Plan
Organizations that evaluate increase their success. Periodically evaluate whether your plan is effective, and then modify your plan or your implementation to get the results you want. Plan to evaluate at 3 months, 6 months, 9 months, 12 months and 18 months. You also will need criteria to evaluate. I call them Criteria for Success. Consider the following:
–Did your organization meet its financial goals?
–Did your organization meet your donor cultivation goals?
–How effective was your email fundraising campaign?
–Which fundraising tools were most effective?
–What were the three biggest factors in the successes?
–What were the three biggest challenges?
–Were your staff, board and volunteers prepared?

You are now on your way to great fundraising success!

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Small Business Guide to Government Grants and Loans

The U.S. government offer a wide-variety of low-interest loans and venture capital financing programs to help entrepreneurs start and grow their businesses. In addition, some federal and state agencies award a limited number of grants for very specialized business activities such as scientific research and development. The following guide provides an explanation of federal and state loan, grant and venture capital financing programs available for your small business.

Small Business Loans

SBA Loans

The U.S. Small Business Administration (SBA) assists small business owners to start and expand their businesses by helping them get loans through private banks and financial institutions. SBA is the largest single financial backer for the nation’s small businesses with a portfolio of business loans, loan guarantees and disaster loans worth more than $45 billion, in addition to a venture capital portfolio of $13 billion.

SBA offers a number of low-interest loan programs for new and expanding small businesses. SBA is not a lender, and does not grant loans directly to businesses. Rather, SBA is a guarantor of loans made by privately owned banks and other financial institutions that agree to follow SBA’s guidelines.

To apply for an SBA loan, you need to visit your local participating bank or lending institution. When you apply for an SBA loan you are actually applying for a commercial loan, structured according to SBA requirements, which receives an SBA guaranty. This guaranty is portion of the loan the SBA will pay back to the lender should you default on your loan payments.

SBA’s Financial Assistance Guide describes SBA loan programs, including eligibility requirements, and how to apply for them.

Remember, that you’ll need to go through a local bank or financial institution to apply for an SBA loan. To get a list of SBA lenders in your area, contact your SBA District Office.

SBA Loans for Veterans

SBA offers a few loan programs to assist veterans and members of the military community:

  • Patriot Express Loan Initiatve
    The SBA’s Patriot Express program provides loans for veterans and members of the military community wanting to establish or expand small businesses.
  • Military Reservist Economic Injury Disaster Loan Program
    Provides funds to eligible small businesses to meet its ordinary and necessary operating expenses that it could have met, but is unable to meet, because an essential employee was “called-up” to active duty in their role as a military reservist.

USDA Loans

If you operate a farm, the U.S. Department of Agriculture (USDA) has a Business and Industry (B&I) Guaranteed Loan Program that works in the same manner as SBA loans. The USDA provides guarantees of up to 80 percent of a loan made by a commercial lender. Loan proceeds may be used for working capital, machinery and equipment, buildings and real estate, and certain types of debt refinancing.

The B&I Loan Guarantee Program Fact Sheet provides all you need to know about obtaining one of these loans, including eligibility, loan terms and conditions, equity requirements, and interest rates. Like SBA loans, you need to go through your local bank or financial institution to apply for a B&I loan. If you have any questions about the B&I Loan Guarantee Program or other financial options available for small farms, contact your state’s Rural Development Field Office.

Other Federal Loan Programs

Depending on your type of business, you may qualify for specialized federal loan programs. For example, if you are small and disadvantaged business engaged in federal transportation contracts, you may qualify the U.S. Department of Transportation’s Short Term Lending Program.

If you are a small trucking company, the Environmental Protection Agency’s (EPA) SmartWay Transport Partnership has partnered with several lenders to make money available to small trucking companies to help pay for technologies that saves fuel while reducing pollution.

To find other federal loan programs serving small business concerns, visit, the U.S. government’s central database of government loan programs.

State and Local Loan Programs

Many state and local governments also offer low-interest loan programs that they guarantee through commercial lenders. Contact your local Small Business Development Center to get assistance with locating state and local funding sources for your small business.

Venture Capital Financing

Small Business Investment Companies (SBIC)

In 1958, Congress created the Small Business Investment Companies (SBIC) program to help small U.S. companies raise capital. SBIC’s are privately owned and managed investment firms that provide venture capital and start-up financing to small businesses. To be eligible for SBIC financing, your business must meet certain SBA size requirements for a small business. Generally, the SBIC Program defines a company as “small” when its net worth is $18.0 million or less and its average after tax net income for the prior two years does not exceed $6.0 million. When you contact an SBIC, you’ll need to present a professional business plan that addresses your company’s operations, management, financial condition and funding requirements.

The following resources will help you locate SBIC financing:

Active Capital (formerly Angel Capital Electronic Network – ACE-Net)

Active Capital is a nationwide listing service that connects entrepreneurs with angel investors. Potential investors can obtain information on start-ups and expanding small businesses seeking $250,000 to $5,000,000 in venture capital. Active Capital’s main benefit is that it allows entrepreneurs to directly access a nationwide network of investors while complying with federal and state securities regulations.

Small Businesses in Economically Distressed Communities

If your business is located in a low-income geographic area, there are a couple of venture financing options available to you. First, there is a special type of SBIC called Specialized Small Business Investment Companies (SSBIC). SSBIC’s provide assistance solely to small businesses owned by socially or economically disadvantaged persons. Secondly, you may be eligible for New Markets Venture Capital (NMVC) financing. Modeled after the SBIC program, the NMVC program makes equity investments in small businesses located in economically distressed communities in urban and rural areas. NMVC financing is available in limited areas, and available from these venture capital firms.

Federal and state grants are only available to support non-profit organizations, lending institutions, and state and local government programs that provide technical and financial assistance to small businesses. If your business is one of these organizations, provides grant opportunities available from federal agencies.

Again, federal and state government agencies do not award grants for starting, managing and expanding small businesses. However, state and local government grant opportunities may exist for small businesses engaged in very specialized activities. Many states provide job training grants to new and expanding firms. Other states provide grants to fund scientific research projects, and grants for agricultural development. For example, the New York State Dept. of Agriculture & Markets’ Winery Website Improvement Grant Program provides money to state wineries and vineyards for improving their websites. The California Energy Commission’s Energy Innovations Small Grant Program provides funds to small businesses to conduct research that establishes new, innovative energy concepts. Check with your state or local government to find these sorts of specialized grant opportunities.

Small Business Grants

A few federal programs provide grants to small firms engaged in scientific research and development (R&D). The Federal government’s SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs award a specific percentage of Federal R&D funds to qualified small businesses. SBIR/STTR programs encourage small firms to undertake scientific research that helps meet Federal R&D objectives, and have high potential for commercialization if successful. The following agency award SBIR/STTR grants:

More Information

While there is no free lunch when it comes to getting government financing for your small business, there are a wide-variety of low-interest, accessible loans and venture capital available to you. This guide has presented only a sample of the most common government programs. To get more information on government grant and loan programs.

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Final Rules Unveiled for ‘i3’ Innovation Fund

By Michele McNeil

The U.S. Department of Education today unveiled the final rules for its $650 million Investing in Innovation, or i3, grant program, standing fast in the face of criticism that its proposed guidelines demanded too much from applicants in the way of private-sector match and evidence to back up their proposals.

In the final rules and application for the program, department officials left intact a demand that applicants secure 20 percent in matching funds from the private sector.

But in a nod to concerns that such a requirement could be burdensome, particularly to smaller districts and in a difficult economy, the department relaxed the timing so that prospective grant recipients don’t need to find those dollars until they’ve been notified that they will win as long as they secure the private funding.

In essence, a foundation or other organization will know that its matching donation is a sure-fire bet.

“Once you’re eligible to be a winner, we hope we’ve made it much easier to find those dollars,” said James H. Shelton, the department’s assistant deputy secretary for innovation and improvement.

In addition, the department is still allowing applicants to seek a waiver of the matching-funds requirement at the time they apply.

The matching requirement had been one of the most criticized elements of the i3 program’s draft guidelines, which were unveiled in October. Few other changes were made to the proposed guidelines for the grant program, which is meant to foster and expand innovative education strategies at the district level.

The competition, funded by the American Recovery and Reinvestment Act, is open to school districts and nonprofit partners working with a district or consortium of schools. It will provide awards of up to $55 million each. Applications are due in mid-May, with awards to be made in September.

The i3 program is the second of two high-profile competitive-grant programs funded by the economic-stimulus law, and is illustrative of the Obama administration’s desire to push education improvement through competition for federal dollars. The other program, the $4 billion Race to the Top competition, for which finalists were named last week, is only open to states. Despite its smaller prize, the i3 program has drawn intense interest because it’s open to districts and nonprofits, and is much more open-ended in the kinds of proposals being sought.

The heart of the i3 program also remains intact: The $650 million will be divided into three tiers of awards, with the most lucrative going to those proposals that have the most evidence of past success in helping students.

And despite complaints during the public-comment period that the Education Department wouldn’t be requiring enough evidence from applicants—or would be demanding too much—officials made no changes to how much research is needed to back up applicants’ proposals.

The largest, or “scale up,” grants—worth up to $50 million each—will require “strong” evidence, such as program evaluations that used random assignment of students.

The second-tier, “validation” grants of up to $30 million each will go to proposals that show “moderate” evidence, such as those that use sophisticated statistical techniques to try to measure the true effects of a program.

The final-tier, “development” grants are wild cards to a degree; they are $5 million awards to proposals that are each based on a “reasonable” hypothesis or theory. The department made one change to the timing of that third tier of grants: No longer will applicants need to get prescreened before submitting their applications; their applications will be due at the same time as all the other i3 proposals.

“The overall design of the competition tries to account for the importance of evidence at each stage of innovation,” Mr. Shelton said.

For each tier, the level of evidence required is an all-or-nothing eligibility requirement; an applicant that doesn’t have the research to back up a proposal for that particular tier should not bother applying.

While the level of evidence did not change from the original proposal, the final rules do spell out how much emphasis the department is placing on evidence—and what criteria will matter most for each level of grant.

Each tier will be scored on a 100-point scale, based on seven criteria: need for and quality of the project; evidence; applicant’s track record of success; quality of proposed evaluation of a winning project; ability to scale up; sustainability; and quality of management plan and personnel.

In the largest, scale-up grants, evidence is what matters most: It’s worth 20 percent of an applicant’s grade. For the smallest, development grants, evidence is worth just 10 percent. But those smallest grants place a significant amount of weight on the need for the project, and the applicant’s track record—each is worth 25 percent of the final grade.

“For innovation, it’s not just about coming up with cool inventions; it’s about finding things that can go to scale,” Mr. Shelton said.

The department also kept competitive priorities that will reward applicants with bonus points if their proposals focus on early education, college access, students with disabilities and limited English proficiency, and rural schools. Each of those categories would earn an applicant one bonus point, except for the rural schools category, which garners two bonus points on the 100-point scale.

The department is bracing for more than 1,000 applications, all of which will be judged by peer reviewers who will be hand-picked for their experience, and will be vetted to minimize or eliminate conflicts of interest.


In the Arts: Debt and Infighting Burden Black Colorado Theater

March 9, 2010, 06:00 AM ET

By Andy Markowitz

Debt, shrinking audiences, and internal conflicts are threatening the future of Shadow Theatre, Colorado’s only black stage company, The Denver Post reports.

The 12-year-old group’s artistic director resigned last week after eight months on the job, citing power struggles with the theater’s board and claiming he is owed back pay. Shadow is $60,000 behind on rent in its 191-seat Aurora, Colo., theater, which opened in 2008, and audiences have dwindled to less than a dozen patrons for some performances.

In other arts news, auditors say California’s San Jose Repertory Theatre might not survive the summer after nearly doubling its losses last year, says the Associated Press. Despite receiving $300,000 a year from the city of San Jose for operating costs as well as rent-free use of a partially city-built home, the organization lost about $407,000 last year, up from $221,000 in 2008.

Also, John L. Gray is stepping down as president of the Autry National Center of the American West, according to the Los Angeles Times. With over 11 years in office, Mr. Gray was credited with transforming an institution devoted to the legacy of the film and recording star Gene Autry into a multifaceted museum and center for the study of the western United States.

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Gund Foundation Awards $9.4 Million in First-Quarter Grants

The Cleveland-based George Gund Foundation has announced fifty-six grants totaling nearly $9.4 million to Ohio nonprofits working in the areas of education, human services, economic and community development, the environment, and the arts. First-quarter grants announced by the foundation include $3.6 million over three years to Neighborhood Progress to support its neighborhood residential and commercial revitalization efforts; $360,000 over two years to the Center for Community Solutions for its policy and fiscal analysis work and a statewide campaign to promote investment in the needs of young children; and $280,000 over three years to Planned Parenthood of Northeast Ohio for a new regional medical center.

In addition, the foundation awarded $250,000 to the Downtown Cleveland Alliance for its efforts to revitalize downtown Cleveland; $200,000 to the Center for Families and Children for its Greater Cleveland Integrated Re-Entry Project; and $90,000 in general operating support to the Cuyahoga Valley Countryside Conservancy. As previously announced, the foundation also awarded $2.6 million to the Cleveland Municipal School District to support its proposed transformation plan. “Gund Foundation Makes Multi-Year Commitment to Cleveland Neighborhoods.” George Gund Foundation Press Release 3/02/10. Primary Subject: Philanthropy and Voluntarism Secondary Subject(s): Education, Community Improvement/Development, Arts and Culture, Human Services, Environment Location(s): Cleveland, Ohio FC014584

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Angel Investors Get Picky

Competition for startup cash is tougher than ever, and companies that might have sought venture capital in the past are turning to angels provider TowerCare Technologies’ Donna Myers. David Schrott, Jr.

Meet the new breed of angel-backed entrepreneur. Donna Myers, president of software provider TowerCare Technologies, is in the process of securing $2 million in angel funding. But she’s no newbie: Her 22-person Wexford (Pa.) company has 160 customers and last year generated $500,000 in sales.

In years past, a firm of Myers’ size might have sought venture capital. But as venture capital funds have moved upstream, doing larger deals, angel investors are being pitched by much more established companies. Now it’s not just first-time entrepreneurs or those whose companies are in their infancy who are winning cash from angels, although those entrepreneurs are still pitching. Increasingly, successful candidates, like Myers, boast impressive experience and a significant customer base.

“The bar has been raised,” says Catherine Mott, who runs Pittsburgh’s BlueTree Allied Angels, which expects to put $2.8 million to work in about a dozen transactions this year, up from $1.8 million in eight deals last year. Her group plans to fund three more deals by yearend and has the enviable problem of picking among a half-dozen promising companies. “We are seeing such great quality deals,” Mott says. “Those six are going to be difficult to choose from.”

More Pitches

Mott’s isn’t the only group being courted more fiercely. The Atlanta Technology Angels are seeing about 50% more pitches than they did a year ago, says Knox Massey, the group’s managing director. James Geshwiler, managing director of CommonAngels in Lexington, Mass., says the number of proposals making it through his first cut jumped 36% in the first half of this year. Other groups are seeing smaller jumps: 10% at Wisconsin Investment Partners in Madison, 7% at Seattle’s Alliance of Angels.

Angel groups are linking up to do bigger deals. According to Jeffrey Sohl, director of the University of New Hampshire’s Center for Venture Research, the average angel deal in the first half of 2008 was about $540,000, up 8% from the same period in 2007. At the same time, some angels, rather than investing just in new companies, are also continuing to make big bets on companies they invested in earlier, says Sohl. That makes true startup dollars even harder to come by.

With the number of active angels jumping 10% in 2007, to 258,200, you might think relief is on the way. But the amount invested last year rose just 1.8%, to $26 billion, Sohl’s research shows. And he expects the dollars invested to hold steady this year. So the pursuit of angel dollars will only get tougher.

To hear what angel investors across the country say they are looking to invest in now, flip through this slide show.

Barrett is a senior correspondent for BusinessWeek SmallBiz. For more information, visit

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Advice for Startups Seeking Venture Capital

The financial crisis makes it harder to get funding, but those that prove themselves during this period will be better positioned to thrive

By John Tozzi

Landing venture capital is tough for startups (BusinessWeek, 2/1/08), even in a good economy. But given the ongoing financial crisis, how hard is it for early-stage companies to get funded right now? Venture capitalists say entrepreneurs face a much higher bar than in recent years. They liken the downturn to a period of natural selection, when weak businesses will fail but strong ones will prosper. New companies that prove themselves now, they say, are better positioned to thrive when the economy recovers.

“Almost by definition the entrepreneurs who have the moxie to walk through your door in tough times tend to have better ideas,” says Mike Goguen, a VC with Sequoia Capital in Menlo Park, Calif. Goguen says many of Sequoia’s best-performing companies have been founded around down times. Today, VCs report seeing stronger proposals from more serious entrepreneurs than in years when the economy was stronger.

Venture firms are still investing, and they emphasize that they have plenty of money to back good business ideas. But funding has slowed. U.S. venture funds invested $7.1 billion in 907 deals during the third quarter of 2008, down 7% from the prior quarter and 9% from the third quarter of 2007, according to the MoneyTree Report from the National Venture Capital Assn. and PricewaterhouseCoopers. “The funnel for dollars is becoming smaller and smaller,” says Mark Heesen, president of the NVCA. VC funds also have to commit more time and capital to help existing portfolio companies weather the downturn while the potential for exits through acquisitions and initial public offerings has greatly diminished (BusinessWeek, 10/14/08), he says.

Cash Flow Proof

For entrepreneurs running startups, the game has changed. Speculative business models won’t get funded, says Bob Ackerman, co-founder of Allegis Capital in Palo Alto, Calif. Companies need to demonstrate that their value proposition is real, and that they can hit measurable benchmarks toward generating revenue and positive cash flow, he says. In an environment where consumers and businesses are cutting spending, entrepreneurs need to ask, “Is this a company that absolutely must be started now? Or could this wait a couple years with no apparent penalty?” Ackerman says.

Startups also need to prove they can build lean organizations that use the money invested efficiently (, 10/12/08) to get to profitability, says Pascal Levensohn, founder of Levensohn Venture Partners in San Francisco. “A year ago, somebody would have walked in and have been told that they shouldn’t be asking for less than $5 million for a Series A because otherwise it’s too small to get institutional venture capitalists interested,” he says. Now companies should be prepared to discuss the minimum amount of money they need to validate their business models. Once the concept is proven, Levensohn says, larger follow-on investments can help it scale.

Entrepreneurs seeking investments should also be prepared for lower valuations (, 11/7/08). As other sources of financing vanish, VCs enjoy a buyer’s market and will expect a larger share of equity from companies they invest in, says Heesen. It’s a silver lining for venture funds: “There are very, very good deals out there if you have the time and the money to be investing in them,” Heesen says.

Timing It Right

With that in mind, some entrepreneurs are waiting longer to raise capital if they can afford to, says Divya Gugnani, entrepreneur-in-residence at FirstMark Capital in New York and CEO of culinary Web site Behind the Burner. “The value of their company goes up when they spend six months or a year getting it off the ground,” says Gugnani, who is also a venture capitalist. Startups that can bootstrap long enough to turn their ideas into products and demonstrate revenues will get better valuations, she says. “More people are being more intelligent about when to raise the round.”

Companies with enough capital right now should use the downturn to strengthen relationships with customers and potential future investors, says Aassia Haq, CEO of online talent marketplace Alumrise. She says her four-person Plano (Tex.) startup has enough funding from angel investors to operate well into 2009, and she is not actively trying to raise money now. “We start with fostering ties and relationships, and those things take a long, long time to come to fruition,” she says. “I think a great investment in this economy is to continue to meet smart people face to face.”

But those startups strong enough to succeed now shouldn’t wait to seek funding just because of the economy. “Please do not think that because the economy’s bad it’s a bad time to start a company if you have the right idea,” says Sequoia’s Goguen. Businesses born during the downturn will need to operate more efficiently and deliver more value to customers than companies launched during boom times, but they’ll be stronger for it. “The toughest environment forges the strongest companies, and the toughest entrepreneurs are the ones who tend to show up these days,” says Goguen.

Tozzi covers small business for

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Social Entrepreneurs: Friends or Foes?

This article written by Julie Chapman, Co-Founder, YesKidzCan tackles the topic of social entrepreneurship and the many challenges those who work in the social entrepreneurship arena face. Please read the article listed below.

Earlier this year, Lisa Novick and I launched a social entrepreneurial company together. Our online company provides tools and resources that help parents, schools, and community and faith groups promote volunteerism among young kids. We thought it was a way to do good while building a sustainable company.

Little did we know that our do-good intentions would be rebuffed rather than embraced by some who seemed like natural allies.

For years, we’d dreamed of creating a company like Newman’s Own that donates 100 percent of its net profit to charity. The dream goes something like this: produce a product of value; aggressively bring it to market using traditional marketing, public relations, and advertising tools; earn a profit; cover all operational expenses; and donate the profits to charity. We saw it as the quintessential win-win-win for the company, employees, and the community.

Of course, such a model isn’t for the faint of heart. The idea of giving 100 percent of the net profits to charity is pretty extraordinary, and not all social entrepreneurs are willing to go that far. So you can imagine how surprised we were when a leader of a philanthropic organization commented, “You seem like another consumer company trying to sell us something.”

Is it possible that after all these years a gigantic wall of distrust still exists between nonprofits and companies with a socially responsible mission? Is it possible that wariness of entrepreneurial practices still trumps inventive thinking that has the potential to bring about meaningful social change? History is full of examples of innovation being met with concern or doubt. Consider the Wright Brothers, the microwave oven, or the Internet. Skepticism has its place. But how much more does a do-good company have to do to prove its trustworthiness and value?

Our hope is that the philanthropic community will point to our work — and the work of other social entrepreneurs testing the waters — as valid, even bold examples of social innovation. Our hope is that the sector will encourage companies to branch out in new directions in their effort to benefit social causes. And our hope is that we won’t be deemed less committed to positive change for using words like “customer” or for embracing marketing, advertising, and public relations practices.

We like the nimble pace and less restricted structure of a private company, and we have no plans to file for 501(c)(3) status or compete for public funding to help drive our mission. Our survival rests squarely on our ability to create mutually beneficial exchanges with our customers. Risky? Absolutely. But the thrill of entrepreneurism and the hope of giving away millions excite and motivate us.

So, please think of us as a friend who is as eager to make a difference in the world as much you are. And at the risk of seeming too brazen in our social entrepreneurism, we encourage you to decide for yourself.

Julie Chapman and Lisa Novick are co-founders of YesKidzCan! and have spent the past twenty years working in the philanthropic sector as consultants, fundraisers, and volunteers.

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Attention Small Businesses! Apply to the SBA’s Arc Loan Program

About the ARC Loan Program

ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months. ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt.  These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs.  For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.

ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA.  Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds.  Repayment can extend up to five years.

The best candidates for ARC loans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship. ARC Loan FAQs for Borrowers.

ARC loans are made by commercial lenders who are SBA participants. The SBA will pay these banks a monthly interest rate throughout the term of the loan. Lenders can find more information here. Non-SBA lenders can easily become SBA participants by working with their nearest SBA district office. Businesses interested in applying for an ARC loan should first contact their current lender.

ARC loans will be offered by some SBA lenders for as long as funding is available or until September 30, 2010, whichever comes first.

About the ARC Loan Program

ARC Loan Eligibility

Applying for an ARC Loan

Learn How SBA Can Help