What is a Business Incentive?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 March 2018
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A business incentive is a benefit or motivating factor that is used to attract the attention of businesses and entice them to establish operations within a given location. Many jurisdictions offer a wide range of incentives to companies as a way of convincing those businesses to establish operations within the area. Some of the more common examples include tax breaks, as well as assistance in securing real estate for the construction of a plant or store site.

Business incentive programs are common in many areas. It is not unusual for local, state, and national governments to establish industry boards or departments that actively look for ways to attract new businesses to their jurisdictions. Often, the creation of an incentive program is aimed at promoting the benefits that the area can offer to the company in terms of low cost for real estate, special tax structures that save the company a great deal of money over the years, and even an ample supply of workers for the new business facilities. When an incentive program is successful, the economy within the jurisdiction can be revitalized, lowering unemployment and increasing the rate of trade among local businesses.

The creation of a business incentive policy typically involves assessing what a given geographical area has in terms of resources that would attract new business. For example, if the makeup of the population includes a considerable number of factory workers who were recently displaced by the closing of one or more manufacturing plants, the local government may actively market the area to new businesses, noting the readily available supply of potential employees. As part of the effort, the jurisdiction may choose to reduce or even defer certain local taxes for the first few years after a company does settle in the area, provided they employ a minimum number or people. In some cases, the jurisdiction may even help the company secure property to build a new facility or aid in the refurbishment of an older facility, in exchange for a commitment to remain within the community for a certain number of years.

Since the needs in any given community will be different, the scope of the business incentive plan will vary somewhat. Most will include some sort of business tax incentive, and the assurance of an ample work force to draw upon. Above and beyond these basics, other business incentive options may be included that are unique to that area, or to the type of business that the jurisdiction is attempting to attract.



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