Alternative Venture Finance: Federal Grants and Loans ...

While most firms seeking venture capital initially think of angel investors and venture capitalists, a large option source of financing is federal grants and loans. The two largest federal grant programs are run by the Little Company Administration (SBA), and by Modest Company Investment Firms (SBICs).

An SBA loan, irrespective of no matter whether it is a direct loan from the SBA, or, as is more typical, a bank loan assured by the SBA, is basically a bank loan. The advantage of it versus a traditional bank loan is the rate. SBA rates are normally considerably less than standard business loan rates.

In most situations, within a guaranteed SBA bank loan, the SBA guarantees 90 percent in the loan is going to be repaid towards the bank. As such, banks are at significantly less risk than in most other loans, and are a bit far more flexible with regards to who they offer these loans. Nevertheless, the SBA typically needs the founders from the firm to personally guarantee the loans, which makes them risky should the venture collapse.

Alternatively, Tiny Company Investment Businesses (SBICs) are privately organized corporations which can be licensed and regulated by the SBA. Little or emerging companies which qualify for help from the SBIC system can obtain equity capital and/or long-term loans from these organizations. Essentially, these companies supply their own capital, which is supplemented by federal funds, towards the companies they fund.

Interestingly, U.S. taxpayers rewards from the SBIC program as tax revenues generated from effective SBIC investments have far more than covered the price in the plan. Likewise the system has developed hundreds of thousands of jobs.

In summary, SBA and SBIC financing are viable alternatives to financing from angel investors and venture capitalists and really should be considered inside the capital raising approach. Similarly to angel and VC financing, companies looking for SBA and SBIC financing want a strong management group and value proposition, along with an extremely specialist and compelling business strategy in order to raise the capital they need.

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Source: http://answers.apostoliccm.com/2012/08/alternative-venture-finance-federal-grants-and-loans/

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