While most firms backed by venture capital initially think about angel and venture capitalists, an alternative source of funding for federal grants and loans is large. The two largest federal grant programs are administered by the Small Business Administration (SBA) and Small Business Investment Companies (SBIC).
An SBA loan, regardless of whether it is guaranteed a direct loan from the SBA, or, more commonly, a bank loan from the SBA, is essentially a bank loan. The advantage over a traditional bank loan, it is the rate. SBA rates are much less than the type of lending.
Guaranteed in most cases, a bank loan from the SBA, the SBA guarantees 90 percent of the loan will be repaid to the bank. As such, banks are less at risk than most other loans and are somewhat more flexible because they offer these loans. However, the SBA usually requires that the founder of the company, personally guarantee the loans, so that it is hazardous, the risk of collapse.
In addition, Small Business Investment Companies (SBICs) private companies that are licensed and regulated organized by the SBA. Small or emerging businesses that can benefit from assistance from the SBIC program equity and / or long-term loans from these companies receive. Basically, these companies offer their own capital, supplemented by federal funds, the fund companies.
Interestingly, U.S. taxpayers will benefit from the SBIC program as tax revenues generated from successful SBIC investments more than the cost of the program. Also, the program has created hundreds of thousands of jobs.
In summary, SBA and SBIC financing are viable alternatives to financing from business angels and venture capitalists and should be considered in the process of raising capital into consideration. As in angel and venture capital financing, businesses, SBA and SBIC financing need a strong management team and value proposition, and a highly professional business plan and convincing to need to raise capital.