Why should you apply for a subsidy?
We are all familiar with that feeling when you come up with an awesome idea, but want to wait with asking for financial help. Remember that time when we, as kids, would use to play on the playground, when we’d fall off a climbing frame and would act as if nothing happened? We’d do that because we’d be ashamed to cry in front of our best friends or parents. We’d do that to show that we’re tough. That’s exactly what entrepreneurs do nowadays. They fall off a given ‘climbing frame’, either through figuring out that the production costs of their business are higher than they’ve anticipated or because their ‘partner in crime’ leaves. However, they pick themselves up just like those kids on the playground and do as if nothing has happened. As if they haven’t been hurt. But the truth is, they are hurt and they need help. That’s why they need to learn how to ask for assistance and this article will hopefully help them – and you – to achieve that.
1. Subsidies lower the costs of production
Naturally, when one receives funding, they are able to produce their good or service at a lower production cost than without the money. Let’s say you’re selling a robot that helps people clean the house. In order to conduct all the Research & Development, get a team of dedicated workers helping you advertise and sell it, you’ll have to have a lot of capital in the bank. And the office space and manufacturing costs are also something needed to be taken into account. Shortly, to execute an idea, you need a load of cash. Better than going to the bank every time, you can just create an account on our new platform, pitch your idea and then apply for a subsidy! This way, you’ll get a head start into the entrepreneurial world and you’ll make yourself more attractive to future investors. How? By getting a subsidy, they’ll know that you’ve got an idea worth investing in!
2. Subsidies drive the demand for your product up
Since subsidies decrease the costs of production, in theory, you’ll be able to produce more of your good or service at a lower price. Why? Well if you produce things in bulk, usually you’ll get a discount on the overall production price. Hence, if you get more of those cleaning robots on the market, you’ll be able to sell them at a lower price too. What does that mean? According to the Law of Demand; ceteris paribus, as the price of a good/service decreases, quantity demanded increases. Hence, the demand for your product will rise! And isn’t that what you all entrepreneurs want? More sales? Click here to get there!
3. Positive externalities are internalized
Positive externalities are benefits that are enjoyed by third parties (society) as a result of an economic transaction. As an example, if education is (partially) funded by the government, this encourages the workforce to study and hence to get a job. Hence, the positive externality here is a more innovative and productive workforce. In another case, if an imaginary air-cleaning startup gets subsidized, not only will the air in a given area become fresher and cleaner. The company developing this will also be able to benefit by breathing in fresher air. And so this is how positive externalities are internalized. Be a part of it!
4. The society becomes allocatively efficient
Allocative efficiency is when production represents consumer preferences. In other words, the distribution of goods and services is optimal. In such an economic state, nobody produces more than is demanded and nobody consumes more than is supplied. Of course, such a perfect state is impossible to be achieved in the real world – this is just a theoretical term. However, subsidies encourage allocative efficiency through making businesses produce more of their products. They also make consumers buy all those products (see above). Overall, a win-win situation is created, because producers (you, entrepreneurs!) get to raise their revenue through selling more products, while consumers are encouraged to buy them.
Taking all benefits of subsidies into consideration, you should stop doubting whether to ask for a subsidy or not. Of course you should apply for a subsidy and you should do it now! Not only will your business benefit from the extra money available. Also your customers and the society will thank you for it. So don’t be that kid on the playground who falls down the climbing frame and acts as if nothing has happened. Because if you hide your pain when doing business, eventually it’ll come out!