23/01/2013 07:52 GMT | Updated 24/03/2013 05:12 GMT

The Government's Startup Loans: Lets All Start a Car Wash Store!

The government has come under quite a bit of flack recently after expanding its startup loans scheme from 18 to 24-year-olds up to the age of 30. The expansion of the scheme is a clear signal of the government's ineptitude to secure enough applications for the original 18-24-age band.

Lord Young, the "godfather of the startup loans", stated that the scheme would help tens of thousands of young businesses. However, in the last six months, since the new scheme was launched, only 600 businesses have applied and succeeded in receiving a loan (out of a total of 3,000 applications).

The problem with the scheme is that it's micro-economic thinking at its worst. "Let's seed out £2,500 to thousands of young entrepreneurs, blindly throw mentors at them, and pray that one of them becomes the next Steve Jobs".

In order to create a new entrepreneurial society, you need to think big, macroeconomics. Create the right entrepreneurial infrastructure and environment. There's a reason so many Harvard graduates go on to found successful tech and finance companies - the investment, funding, contacts, networking, education and mentoring is already there.

Google's Tech Campus in London is the perfect example of what I'm talking about. It provides free wi-fi and workspace to young entrepreneurs in the heart of London. This is in addition to weekly mentor programs, networking events, speaker series and more. It creates the fast paced, technology driven, dynamic environment, which envelopes young entrepreneurs and developers.

You can't just simply hand a £2,500 cheque to a start-up business to someone in the Midlands, after graduating with a degree in Geography, throw them a mentor plus £500 worth of vouchers and expect business to bloom. It's already too late in the game for that. Besides, where is that money actually going to go? £500 per month for an office, £500 for marketing, £500 for an accountant to file their incorporation documents, £1,000 for a website and hosting.

Don't get me wrong, it's a fantastic idea if the government wants to fund tens of thousands of businesses, see who performs the best in a 30-day trial period, and then choose the leading candidate. This would be great reality TV. But aghast, that's not how real business is done. Real businesses require hard work, planning, execution, and the incubation of great ideas.

It's nice that the government want to look "cool and edgy" with their new startup loans website, and accepting applications for the scheme primarily by "liking" their Facebook Page, but you only have to look at the official startup loans kit website with it's out of date information (it still clearly says 18-24 year-olds weeks after the scheme was expanded to 30 year-olds), to see how well the whole thing is being run.

This is what leads to my conclusion. £2,500 may be the perfect amount to start a small car wash or cleaning service nation, but its not enough to jump start a new breed of technology-driven entrepreneurs who are already facing an average debt of more than £50,000 after leaving University. Lord Young may see startup loans as a means of helping the 1 million young and unemployed people, but you can't just assume every has an entrepreneur inside them.

What's the proverbial saying? "Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a life time". Maybe the government should take note - £2,500 for a startup business is basically just a fish. It's about time we start teaching them how to fish.

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