Many people who become unemployed take the opportunity to start a business for themselves, and to become their own employer. If you have a good idea, or a special skill you think you can turn into a business, you might want to consider starting your own enterprise.
Töötukassa provides financial backing to unemployed persons who form new enterprises, through a business start-up subsidy.
The maximum amount of the subsidy depends on the available budget and on the needs of your new business. In 2013, the maximum is set to 4474 EUR. This does not mean that everyone who is granted the subsidy will receive that amount – what is granted depends on the eligible needs, as they are expressed in the business plan.
In order to receive a business start-up subsidy, you must be at least 18 years old, and be able to demonstrate some experience in running a business. That experience can be shown by referring to your past activities or education, or by completing a specific business training.
As the subsidy is meant to create employment, one must be unemployed in order to qualify. Also, the subsidy is only given for the purpose of starting a new business, not for expanding or enhancing an existing economic activity or to invest in an existing company. This means that you must apply for the subsidy before you start the business, and that you have to wait until you have received a decision. For the same reason, persons who own a share of at least 51% in an existing company are excluded from receiving the subsidy.
To give a new business all chances of success, no subsidy is given to persons for whom a prohibition on business applies, or to persons who have a tax debt.
Even if all these criteria are met, the subsidy can be denied if the business plan involves a high risk. This is decided by Töötukassa, on the basis of the documents and the business plan you present together with your application.
What form should the business take?
The subsidy is granted in order to develop an economic activity with the purpose to obtain a sufficient income. The legal form under which the activity is developed does not matter. In most cases, activities are developed either as a self-employed person, or by setting up a company with limited liability (OÜ).
What costs can you get subsidies for?
The rule of thumb is that the costs must be reasonable and necessary to start a business. This is assessed individually, on the basis of your idea and the business plan. When listing what you need for your business, you should be prudent and price-conscious.
Because business start-up subsidies are funded through European programmes, some costs are absolutely not eligible, and the compensation for others is restricted. For example, if supplies or services are bought with a value of over € 1279, a tendering procedure must take place. Vehicles can be entered as a legitimate cost, but only when the vehicle is necessary for the activities of the business, conforms to all applicable norms and standards, and is fitting for its intended use.
Absolutely no subsidies are provided to start up a business that is related to tobacco products or alcoholic beverages, or to gambling and betting activities.
To apply for the subsidy, one must submit an application form, a business plan, and documents that show sufficient qualifications and/or experience.
A solid business plan is important to any new venture. It outlines how you intend to develop the economic activity, and how you plan to cope in the existing economic environment. To make decision-making easier and faster, and to make sure the business plan contains all the necessary elements, a preferred format is made available here.
The documents that prove your qualifications and experience must be objective and verifiable. You should attach documents such as copies of diplomas or training certificates, proof of registration of a previous business, etcetera.
On the basis of your application and your business plan, Töötukassa assesses if, and how much, subsidy is to be granted. For example, the costs for which you want a subsidy are looked at, and the risk connected to your business is evaluated.
A decision is made within thirty working days after your application has been received.
After the amount is granted
The business start-up subsidy must be used for the intended purpose, as is expressed in the business plan. To make sure this is the case, the economic activity of the person who has received the subsidy is inspected at least twice a year, a first time within six months after the subsidy has been transferred. If the start-up subsidy is not used for the intended purpose, it has to be returned, in particular if you haven’t started the economic activity within six months or have stopped activities or sold your company within the year, without good cause.
The simple fact that your business fails, or that reality forces you to make some changes to what you had intended to do, does not mean that you will have to pay back the subsidies. The only criterion is that the funds are used for what they are intended for, as is expressed in the business plan.
The business start-up subsidy is partly financed through the European Social Fund. Because of this, additional rules concerning visibility apply. These are explained to you in the decision you receive.
Tips for applicants
Before a subsidy is granted, your plans for your new business are scrutinised and assessed. This is done to make sure that your business has the best chances of success, and that money is only given to those who have a realistic plan and the capacity to carry it out.
During the assessment process, we look for (amongst others):
• Your understanding of your business plan.
Many applications are rejected because the business plan is not complete, or not realistic. We advise you to be thorough. Make sure you understand why the mandatory elements of the business plan need to be there, and why they are important for your business. If necessary, get assistance and ask someone else to help you draw up your plan.
• Your place in the market
To have a competitive advantage over other companies in your segment of the market, you need a particular expertise or advantage which gives you an edge over your current and future competitors.
• Realistic start-up costs
Often, business plans are written to get the most out of the subsidy. Instead, make sure you have a realistic view on what is needed for your business, and be as reasonable and cost-effective as you would be if it were your own personal money. A normal mobile phone is just as good for making calls as the latest model. Use the funds to meet the needs.
• A realistic view on the market you enter
Make sure you have a good idea about who your competitors are, and who will buy your goods or services. It is important to have a strategy about when you expect to gain a return of your investment, and not to be afraid to think about what to do when your business does not meet its goals.
The top reasons why applications for business start-up subsidies fail are:
- The applicant does not comply with the legal conditions.
- The business has already started.
- The risks of the business start-up project are too great.
- The business plan is not realistic or incomplete with respect to assessing the market situation.
- There is no adequate competence in the field where the business would be active.
- While the business idea is good, the plan is incomplete.
Training for business start-ups
If you are unemployed and would like to start your own business, but lack qualifications or experience, you can enrol in a specific training programme. This business training includes teaching you how to develop a good business plan, and helps you to meet the criteria in order to apply for the business start-up subsidy.
If you have already started your business with a business start-up subsidy, you can also benefit from trainings that can help you acquire the skills to increase the sustainability of your business and from guidance and mentoring by other successful entrepreneurs.
If you are interested in participating in such opportunities, you can ask more information from your consultant.
Help from others
“Enterprise Estonia” (EAS) offers assistance to entrepreneurs who wish to develop new activities. You can obtain assistance in creating your business plan, for example, but also further financial backing.
Much information for starting businesses can also be found on the portal www.aktiva.ee.