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Alternative Venture Finance: Federal Grants and Loans

Written by admin on April 14th, 2010

Although most companies, venture capital initially think about angel investors and venture capital, another important source of funding for federal grants and loans. The two largest federal grant programs are administered by the Small Business Administration (SBA) and Small Business Investment Companies (SBIC).

An SBA loan, be it a direct loan from the SBA, or, as often, a bank loan guaranteed by the SBA is primarily a bank loan. The advantage of computers over traditional bank loan is the rate. SBA rates are typically much lower rates of loans for traditional enterprises.

In most cases, a guaranteed SBA bank loan, the SBA guaranteed 1990 percent loan will be repaid to the bank. As such, banks are much less likely than in most other loans and are somewhat more flexible in terms of loans they offer. However, the SBA usually requires the company founders to personally guarantee the loans they should risk the collapse of risk.

Otherwise, Small Business Investment Companies (SBICs) are privately held that are regulated and licensed by the SBA. Small businesses and emerging using the SBIC program can receive equity and qualify or long-term loans from these companies. Basically, these companies offer their own capital, supplemented by federal funds for the companies they finance.

Interestingly, U.S. taxpayers have benefited from the SBIC program as tax revenues from successful SBIC investments generated more than covered the cost of the program. In addition, the program has created hundreds of jobs.

In summary, SBA and SBIC financing are viable alternatives to financing from angels and venture capitalists and should be taken into account in the process of raising capital. Similarly to angel and venture capital financing, companies seeking SBA and SBIC financing need a strong management team and value proposition, business plan and a very professional and convincing to raise capital required.