Many entrepreneurs only think of their state or federal government as a possible source of contracts and a reliable source of tax bills. The Small Business Administration (SBA), however, provides many resources for both new and established small companies. In this post, we’ll take a look at several SBA programs that help businesses secure funding.
First, it’s important to know that not everyone is eligible for these programs. Participating companies must fit the SBA’s definition of a small business (you can use the SBA Size Standards Tool to see if this applies to you). In addition, the business must primarily operate and be physically located in the United States or its territories. Other requirements may exist, depending on the funding source.
Loans, Investment Capital, and Surety Bonds
The SBA does not provide direct loans. Instead, it partners with loan providers to help them lend to small businesses more easily. More specifically:
“[The SBA] sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA reduces risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.”
There are SBA-guaranteed loans for many purposes, such as equipment upgrades, real estate purchases, debt refinancing, and revolving credit. Some come with benefits like strategic counseling or lower down payments, while others are open to those with less than stellar credit histories. Principles can be small or large, sometimes reaching as high as several million dollars.
Eligibility requirements vary according to program and lending partner. One crucial rule: businesses can only take out SBA-backed loans if they are not receiving funds from any other lender. In addition, the owners/applicants must have invested some of their own time or financial resources into their company. You can search for lending partners using the SBA Lender Match database.
The SBA can also provide funds by partnering with Small Business Investment Companies (SBICs). SBICs are private owned, but licensed and regulated by the SBA. SBIC’s invest in small businesses through direct loans, by becoming limited partners, or both. The SBA then supports that investment by matching funds, $2 to $1.
Like SBA-backed loans, requirements for this funding will look different at every SBIC. There are also some industries, like agriculture and real estate, that are not eligible for the program. The SBA keeps a searchable database of qualified SBICs and which are interested in new investments.
Many federal and state contracts require companies to obtain a surety bond. This is a form of insurance for the contract issuer; if their contractor cannot fulfill the contract for some reason, the surety bond provider will either complete the work or financially compensate the contract issuer.
According to the SBA, “The SBA guarantees surety bonds for certain surety companies, which allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties.” This allows more small businesses to win contracts and expand their client base.
Low-interest loans are available for business owners who have been affected by natural and man-made disasters. These loans can be used to repair physical damage or loss, or to cover operating expenses. To see if you qualify, look for your state and county in the SBA list of declared disasters.
SBIR and STTR Grants
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide direct funds to businesses “engaged in scientific research and development”. These grants typically go to projects that match with federal R&D goals and “have a high degree of commercialization”. This can be ideal if you have a product prototype that you’re looking to bring to market or sell to government entities.
Info on these and other grant programs is available at grants.gov.
Again, these programs are not for everyone. But as you can see, SBA funding programs are available to a wide variety of businesses. They are particularly helpful for those that have exhausted all other routes of funding.
If you’re on the hunt for funding, we can help! Our seasoned team of venture capitalists fosters start-ups from day one, while established companies come to us for expert financial strategy. Contact us to get started today.
If you’ve already secured funding, find out what you need to do next.