Chattanooga's small business incentives lauded, hit

Bellhops is a Chattanooga-based startup that uses a tech-enabled platform and a workforce of college students to sell manpower for small- to medium-sized moves. Nov. 2014
photo Bellhops is a Chattanooga-based startup that uses a tech-enabled platform and a workforce of college students to sell manpower for small- to medium-sized moves. Nov. 2014

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To apply online: Go to business.chattanooga.gov

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* Wafflez Factory Inc. $2,503 14* Bellhops Inc. $10,000 19* Asdent Corp./Aspire Economy Denture and Dental $6,359 12* Skuidify LLC $4,716 6* Signix Inc. $9,597 12* T.J. Snow Co. Inc. $1,838 5

Seven companies took part in Chattanooga's small business incentive effort in its first year which ended June 30, and city officials are aiming to boost that number in the current fiscal year.

The companies were awarded $37,579 for creating 76 jobs in fiscal 2015. That's $494 per job.

Nick Wilkinson, the city's deputy administrator for economic development, said the program started late in the fiscal year and didn't spend all of the $100,000 it was allotted. Another $100,000 has been earmarked for the incentive program this year, he said.

"Small business is a huge driver [of economic development]," he said about the program that Mayor Andy Berke unveiled last year. Berke said that providing incentives for small businesses to add new employees is one way to help companies potentially expand to medium- or large-sized firms.

"Any study will tell you it's fantastic to bring in large companies but in the long run we have to grow our own," the mayor said.

However, taxpayer advocate Helen Burns Sharp raised questions about the incentives, saying that while everyone wants small businesses to prosper, the program seems like an entitlement.

"It's not like you demonstrate a need," said Sharp, who is affiliated with the watchdog group Accountability for Taxpayer Money.

She also questioned how much it costs the city to administer the program.

"A small program can hugely eat up staff time," Sharp said.

But Cameron Doody, chairman and co-founder of moving company Bellhops, said such "sweeteners" help small companies. Bellhops received $10,000 for the 19 jobs it created, according to the city.

"A lot of companies are moving to Chattanooga. It helps make the decision easier," said Doody, whose business has grown rapidly to about 100 people in Chattanooga.

He said that adding $10,000 to any company's bottom line is significant.

"The money is a great thing, but it sends the right message that Chattanooga is a place that wants you here," Doody said.

Wilkinson said Chattanooga is seeing a renaissance in the city's startup business culture.

"We'll see more businesses taking advantage," he said. "We're trying to send a message to the Chattanooga community and other businesses and entrepreneurs."

Wilkinson said the city uses a formula based on average wages paid by the recipient businesses to determine how much a company receives per job.

If a company is at 100 percent of the average wage in Chattanooga, it receives $500 per employee, he said. If a business pays 200 percent per employee, it receives $1,000 per job, Wilkinson said.

Sharp said that while the city needs business incentives, they ought to be "means-tested."

"Let's make it something (where) they show us how this incentive would make a difference to them," she said. "They shouldn't automatically get a taxpayer subsidy."

Sharp said incentives are needed. "We should keep them in our hip pocket when we need them."

Under the guidelines, qualified companies must have 100 or fewer employees. All newly hired employees must be located inside the city limits.

Wilkinson said the city also is working to help startup businesses by streamlining the processes of getting a business license and other city permits to operate and encouraging private investment in new companies. Chattanooga is one of 11 U.S. cities that have committed to streamline their business licensing processes to allow entrepreneurs to find and complete applications to start a business in just one day.

Last week, a study by the online finance website SmartAsset rated Chattanooga as the cheapest city in America to start a new business. The study found the first year cost of starting and operating a business in Chattanooga is only about half the expense of creating and operating a business the first year in San Jose or San Francisco - the most expensive cities to start a business.

The study found Chattanooga had the lowest wage rates and payroll costs for business among the 10 lowest-cost cities and its average commercial office rent was well below the U.S. average.

Wilkinson said Chattanooga also is benefiting from the growth of venture capital investments in startup businesses.

The city tallied $14 million of venture capital pumped into businesses in the city of Chattanooga in 2014. That was double the $7 million of venture capital invested the previous year, Wilkinson said.

"And we're on track and expect to see even more investments this year," he said.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.