Alternative Venture Finance: 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 essentially a bank loan. The advantages of computer over traditional bank loan is the rate. SBA rates are typically much less than the rate of traditional business loans.

In most cases, a guaranteed SBA bank loan, SBA guarantees 90 percent of the 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 founders of the company 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 will benefit from the SBIC program as tax revenues are generated from successful SBIC investments more than cover 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.

As the 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 the capital needed .

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