Option Venture Finance: Federal Grants and Loans | Arty Apt

Whilst most companies looking for venture capital initially think of angel investors and venture capitalists, a sizable alternative source of financing is federal grants and loans. The two biggest federal grant programs are run by the Tiny Business Administration (SBA), and by Tiny Business Investment Organizations (SBICs).

An SBA loan, regardless of whether or not it is a direct loan from the SBA, or, as is a lot more common, a bank loan assured by the SBA, is essentially a bank loan. The advantage of it versus a standard bank loan may be the rate. SBA rates are generally much less than standard enterprise loan rates.

In most circumstances, in a guaranteed SBA bank loan, the SBA guarantees 90 percent in the loan is going to be repaid to the bank. As such, banks are at a lot much less threat than in most other loans, and are a little much more flexible with regards to who they provide these loans. Nevertheless, the SBA generally requires the founders of the business to personally guarantee the loans, which tends to make them risky should the venture collapse.

Alternatively, Small Company Investment Businesses (SBICs) are privately organized corporations which are licensed and regulated by the SBA. Small or emerging organizations which qualify for assistance from the SBIC system can get equity capital and/or long-term loans from these businesses. Essentially, these organizations offer their own capital, that is supplemented by federal funds, for the businesses they fund.

Interestingly, U.S. taxpayers advantages from the SBIC program as tax revenues generated from successful SBIC investments have a lot more than covered the expense of 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 ought to be deemed within the capital raising procedure. Similarly to angel and VC financing, companies searching for SBA and SBIC financing require a sturdy management group and worth proposition, plus a very professional and compelling company strategy so that you can raise the capital they need to have.

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Source: http://artyapt.com/blog/option-venture-finance-federal-grants-and-loans-2/

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