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Small Business Guide to Government Grants and Loans
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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.
SBA's Financial
Assistance Guide 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. To get a
list of SBA lenders in your area, contact your SBA
District Office.
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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.
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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 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.
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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.
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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:
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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.
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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.
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| 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:
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| 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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