The law for rich youth

Contributors.ro have recently published an article of mine, containing a critique of the law for young people who want to start a business. The advantages are apparently very appealing. As a beneficiary, you receive EUR 10,000 as a nonrefundable grant from the Romanian Government representing up to 50 percent from the investment project, you are waived from paying social security taxes for 3 years, for 2 to 4 employees, you have access to a bank loan of up to EUR 80,000 and are also waived for paying taxes to legally establish your company. However, all these benefits come with many strings attached that I am going to briefly summarize here.

• If you previously had a firm, you are no longer eligible to access this law. So those who have learned many lessons from a failed entrepreneurial experiences, are left aside.
• You can establish your company with only up to 5 domains of activity, which doesn’t make sense.
• You have to hire at least 2 people for up to three years. However, you get only 10 points instead of 20 applicable for 4 people. The maximum that you get for your application is 100 points. Start-ups usually begin with no employees and hire people as they grow. A financial analysis shows that the three-year costs associated with 2 employees are of EUR 21,000 for a company not paying social security taxes. Adding up an investment of let’s say EUR 20,000 and utilities for 3 years of EUR 25,000, we discover that our start-up budget is approximately EUR 66,000, out of which only EUR 10,000 is nonrefundable.
• The law is “inviting” you to go to the bank to cover your own contribution. If you have savings and want to use them in the project, you receive only 10 points instead of 20 if you make a loan. An easy calculation made with a bank consultant shows that for an EUR 50,000 loan, you have to pay back to the bank EUR 81,600 during 10 years.
• Other problem consists in the lack of evaluation criteria for the business plans that are to be evaluated. Whenever there is grant money from public budgets available, the award criteria should be published.

There are other problems as well that lurk in details, but I am going to stop here. The profile of the young entrepreneur though seems to be one of a young person having a good amount of savings, who has at least one apartment to put as collateral in a bank loan, has some kind of office or production space and strong nerves! I can only hope that next year the law will be enhanced and the Romanian Government will consider new ideas from the civil society. Meantime, the law is still an interesting breakthrough for the Romanian legislation.