Alternative Venture Finance: Federal Grants and Loans

While most venture capital firms seek first reflect on investors and venture capitalists, a large alternative source of funding grants and federal loans. The two largest federal grant programs are administered 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 advantage of it against a traditional bank loan is the rate. SBA rates are typically much less than traditional lending rate.

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 much less risk than in most other loans, and are a bit more flexible with regard to whom they offer these loans. However, the SBA usually requires the founders of the company to personally guarantee the loans, which makes them risky if the company collapse.

Alternatively, Small Business Investment Companies (SBICs) are private companies that are organized licensed and regulated by the SBA. Small start-ups or benefiting from the assistance of the SBIC program can receive capital and / or long-term loans to these companies. Essentially, these companies provide their own capital, which is supplemented by federal funds, the companies they fund.

Interestingly, American taxpayers have the SBIC program that tax revenues generated by the successful SBIC investments have more than covered the costs of the program. Similarly, the program has created hundreds of thousands of jobs.

In summary, SBA and SBIC financing are viable alternatives to financing from investors and venture capitalists and should be considered in the process of raising capital. Similarly to the 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 increase the capital they needed.

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 products and service lines and gained competitive advantage and market share. GT Business Plans is the sister site of GT Venture Capital