Alternative Venture Finance: Federal Grants and Loans ...

While most firms seeking venture capital initially think of angel investors and venture capitalists, a sizable alternative 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 Business Investment Organizations (SBICs).

An SBA loan, irrespective of regardless of whether it truly 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 could be the rate. SBA rates are normally considerably less than standard organization loan rates.

In most situations, within a guaranteed SBA bank loan, the SBA guarantees 90 percent from the loan will probably 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 generally demands the founders from the firm to personally guarantee the loans, which makes them risky must 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 receive equity capital and/or long-term loans from these organizations. Essentially, these companies supply their very own capital, which can be supplemented by federal funds, towards the companies they fund.

Interestingly, U.S. taxpayers advantages from the SBIC program as tax revenues generated from effective SBIC investments have far more than covered the cost from 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 thought of inside the capital raising approach. Similarly to angel and VC financing, firms looking for SBA and SBIC financing want a strong management group and worth proposition, along with a highly specialist and compelling organization strategy so that you can raise the capital they need.

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Source: http://articlereference.net/sports-2/alternative-venture-finance-federal-grants-and-loans.html

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