Small Business Guide to Government Grants and Loans
We've all seen the headlines: "Millions
in free government money for your
business." Late-night infomercials,
reference guides and websites promote
the availability of grant money to
entrepreneurs for starting and expanding
businesses. Sound too good to be true?
It is.
The truth is that federal and state
governments do not provide grants for
starting and expanding small businesses.
However, the U.S. government does offer
a wide-variety of low-interest loans and
venture capital financing programs to
help entrepreneurs start and grow their
businesses. In addition, some federal
and state agencies award a limited
number of grants for very specialized
business activities such as scientific
research and development.
The following guide provides an
explanation of federal and state loan,
grant and venture capital financing
programs available for your small
business.
SMALL
BUSINESS LOANS
SBA Loans
The U.S. Small Business Administration
(SBA) assists small business owners to
start and expand their businesses by
helping them get loans through private
banks and financial institutions. SBA is
the largest single financial backer for
the nation's small businesses with a
portfolio of business loans, loan
guarantees and disaster loans worth more
than $45 billion, in addition to a
venture capital portfolio of $13
billion.
SBA offers a number of low-interest loan
programs for new and expanding small
businesses. SBA is not a lender, and
does not grant loans directly to
businesses. Rather, SBA is a guarantor
of loans made by privately owned banks
and other financial institutions that
agree to follow SBA's guidelines.
To apply for an SBA loan, you need to
visit your local participating bank or
lending institution. When you apply for
an SBA loan you are actually applying
for a commercial loan, structured
according to SBA requirements, which
receives an SBA guaranty. This guaranty
is portion of the loan the SBA will pay
back to the lender should you default on
your loan payments.
Research SBA Loan Programs describes
SBA loan programs, including eligibility
requirements, and how to apply for them.
Remember, that you'll need to go through
a local bank or financial institution to
apply for an SBA loan.
Find an SBA Lender allows you to
search for a list of SBA lenders in your
neighborhood.
USDA Loans
If you operate a farm, the U.S.
Department of Agriculture (USDA) has a
Business and Industry (B&I) Guaranteed
Loan Program that works in the same
manner as SBA loans. The USDA provides
guarantees of up to 80 percent of a loan
made by a commercial lender. Loan
proceeds may be used for working
capital, machinery and equipment,
buildings and real estate, and certain
types of debt refinancing.
The
B&I Loan Guarantee Program Fact Sheet
provides all you need to know about
obtaining one of these loans, including
eligibility, loan terms and conditions,
equity requirements, and interest rates.
Like SBA loans, you need to go through
your local bank or financial institution
to apply for a B&I loan. If you have any
questions about the B&I Loan Guarantee
Program or other financial options
available for small farms, contact your
state's
Rural Development Field Office.
Other Federal Loan
Programs
Depending on your type of business, you
may qualify for specialized federal loan
programs. For example, if you are small
and disadvantaged business engaged in
federal transportation contracts, you
may qualify for the U.S. Department of
Transportation's
Short Term Lending Program.
If you are a small trucking company, the
Environmental Protection Agency's (EPA)
SmartWay Transport Partnership has
partnered with several lenders to make
money available to small trucking
companies to help pay for technologies
that saves fuel while reducing
pollution.
To find other federal loan programs
serving small business concerns, visit
GovLoans.gov, the U.S. government's
central database of government loan
programs.
State and Local Loan
Programs
Many state and local governments also
offer low-interest loan programs that
they guarantee through commercial
lenders. Contact your local
Small Business Development Center to
get assistance with locating state and
local funding sources for your small
business.
VENTURE
CAPITAL FINANCING
Small Business
Investment Companies (SBIC)
In 1958, Congress created the
Small Business Investment Companies
(SBIC) program to help small U.S.
companies raise capital. SBIC's are
privately owned and managed investment
firms that provide venture capital and
start-up financing to small businesses.
To be eligible for SBIC financing, your
business must meet certain SBA size
requirements for a small business.
Generally, the SBIC Program defines a
company as "small" when its net worth is
$18.0 million or less and its average
after tax net income for the prior two
years does not exceed $6.0 million. When
you contact an SBIC, you'll need to
present a professional business plan
that addresses your company's
operations, management, financial
condition and funding requirements.
The following resources will help you
locate SBIC financing:
Active Capital (formerly
Angel Capital Electronic Network - ACE-Net)
Active Capital is a nationwide
listing service that connects
entrepreneurs with angel investors.
Potential investors can obtain
information on start-ups and expanding
small businesses seeking $250,000 to
$5,000,000 in venture capital. Active
Capital's main benefit is that it allows
entrepreneurs to directly access a
nationwide network of investors while
complying with federal and state
securities regulations.
Small Businesses in
Economically Distressed Communities
If your business is located in a
low-income geographic area, there are a
couple of venture financing options
available to you. First, there is a
special type of SBIC called Specialized
Small Business Investment Companies
(SSBIC). SSBIC's provide assistance
solely to small businesses owned by
socially or economically disadvantaged
persons. Secondly, you may be eligible
for
New Markets Venture Capital (NMVC)
financing. Modeled after the SBIC
program, the NMVC program makes equity
investments in small businesses located
in economically distressed communities
in urban and rural areas. NMVC financing
is available in limited areas, and
available from
these venture capital firms.
SMALL BUSINESS GRANTS
Federal and state grants
are only available to support non-profit organizations,
lending institutions, and state and local government
programs that provide technical and financial assistance
to small businesses. If your business is one of these
organizations,
Grants.gov
provides grant opportunities available from federal
agencies.
Again, federal and state government agencies do not
award grants for starting, managing and expanding small
businesses. However, state and local government grant
opportunities may exist for small businesses engaged in
very specialized activities. Many states provide job
training grants to new and expanding firms. Other states
provide grants to fund scientific research projects, and
grants for agricultural development. For example, the
New York State Dept. of Agriculture & Markets'
Winery Website Improvement Grant Program provides
money to state wineries and vineyards for improving
their websites. The California Energy Commission's
Energy Innovations Small Grant Program provides
funds to small businesses to conduct research that
establishes new, innovative energy concepts. Check with
your
state or local government to find these sorts of
specialized grant opportunities.
A few federal programs provide grants to small firms
engaged in scientific research and development (R&D).
The Federal government's SBIR (Small Business Innovation
Research) and STTR (Small Business Technology Transfer)
programs award a specific percentage of Federal R&D
funds to qualified small businesses. SBIR/STTR programs
encourage small firms to undertake scientific research
that helps meet Federal R&D objectives, and have high
potential for commercialization if successful. The
following agency award SBIR/STTR grants:
More
Information
While there is no free
lunch when it comes to getting government financing for
your small business, there are a wide-variety of
low-interest, accessible loans and venture capital
available to you. This guide has presented only a sample
of the most common government programs. To get more
information on government grant and loan programs,
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