|
Click Here for more
articles
|
|
|
|
Alternative Venture Finance:
Federal Grants and Loans
|
|
by: Dave Lavinsky
|
While
most companies seeking venture capital initially think about angel
investors and venture capitalists, a large alternative source of
financing is federal grants and loans. The two largest federal grant
programs are run by the Small Business Administration (SBA), and by
Small Business Investment Companies (SBICs).
An SBA loan, regardless of whether it is a direct loan from the SBA,
or, as is more common, a bank loan guaranteed by the SBA, is
essentially a bank loan. The benefit of it versus a traditional bank
loan is the rate. SBA rates are typically much less than traditional
business loan rates.
In most cases, in a guaranteed SBA bank loan, the SBA guarantees 90
percent of the loan will be repaid to the bank. As such, banks are at
much less risk than in most other loans, and are a bit more flexible
with regards to who they offer these loans. However, the SBA usually
requires the founders of the company to personally guarantee the loans,
which makes them risky should the venture collapse.
Alternatively, Small Business Investment Companies (SBICs) are
privately organized corporations that are licensed and regulated by the
SBA. Small or emerging businesses which qualify for assistance from the
SBIC program can receive equity capital and/or long-term loans from
these companies. Essentially, these companies provide their own
capital, which is supplemented by federal funds, to the companies they
fund.
Interestingly, U.S. taxpayers benefits from the SBIC program as tax
revenues generated from successful SBIC investments have more than
covered the cost of the program. Likewise the program has created
hundreds of thousands of jobs.
In summary, SBA and SBIC financing are viable alternatives to financing
from angel investors and venture capitalists and should be considered
in the capital raising process. Similarly to angel and VC financing,
companies seeking SBA and SBIC financing need a strong management team
and value proposition, and a highly professional and compelling
business plan in order to raise the capital they need.
About the author:
GT Business Plans
has developed over 200 business plans for clients that have
collectively raised over $750 million in financing, launched numerous
new product and service lines and gained competitive advantage and
market share. GT Business Plans is the sister site of GT Venture Capital
Circulated by Article Emporium
|
|
