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Alternative Venture Finance: Federal Grants also Loans |
by:
Dave Lavinsky |
While most companies seeking venture capital initially think about angel investors also venture capitalists, a large alternative source of financing is federal grants also loans. The two largest federal grant programs are run by the Small Business Administration (SBA), also 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, also 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 also 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 also SBIC financing are viable alternatives to financing from angel investors also venture capitalists also should be considered in the capital raising process. Similarly to angel also VC financing, companies seeking SBA also SBIC financing need a strong management team also value proposition, also a highly professional also compelling business plan in order to raise the capital they need.
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 product also service lines also gained competitive advantage also market share. GT Business Plans is the sister site of GT Venture Capital
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