Alternative Venture Finance Federal Grants And Loans

Alternative Venture Finance Federal Grants And Loans

Alternative Venture Finance: Federal Grants and Loans
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.

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