Federal financing for small businesses
The place of the small business in the economy of the world has never been doubted. In fact, most research shows that a majority of the developed and emerging economies depend on small businesses to maintain the momentum of their economy’s growth.
Although there is no uniform definition of a small business across the globe, most people will agree that it is one that has less than 100 employees (US position) or under 50 employees (European position).
They are mostly privately owned incorporated associations, partnerships or sole proprietorships. Other modes of achieving this classification will include annual sales, net book value of assets and balance sheets.
Financing of such small “mom and pop” businesses is very challenging due to their inability to possess huge collateral that is demanded by commercial banks and other lending institutions. The federal government has, in several occasions, stepped in to finance these small businesses. Let us look at some of the ways in which the federal government has intervened or can intervene to finance small businesses.
Federal government small business finance
Government business and how the federal funding of businesses is not a new concept. As more and more people choose to engage in their own businesses and thus limiting the governments need to create employment, legislation and good will towards small businesses from the federal government is increasing. However, it should be noted from the onset that there are no small business grants from the federal government to start or grow a small business.
In certain circumstances and for small businesses in specific industries, grants from U.S. federal agencies may be available.
The federal government through its agency, the Small Business Administration (SBA) guarantees loans that are offered by banking institutions to small business owners. Established in 1953, the SBA has district offices across the country.
When the small business owner takes his or her business proposal to a commercial bank, he/she may be advised to seek the SBA to act as a guarantor. If the SBA approves your proposal for seeking business financing from the lender, it will then guarantee to pay the lender up to 85% of the loan in case of default to service the loan.
Qualifications for an SBA loan guarantee
The SBA guidelines on the requirements for a basic 7(a) loan will be that the loan applicant must first of all be eligible and have a repayment capability from the cash flow of the business. Other considerations include good character, good business management capability, collateral (security for the loan) and the owners’ contribution to the business (owners’ equity).
If you are a veteran with the intention of financing a small business then the federal government through the SBA will provide assistance under the Patriot Express Pilot Loan Initiative. Federal assistance to finance small businesses will also be extended to special purpose loans which include employee trusts and pollution control. Small businesses which have experienced disasters can also access these loans if they meet the set requirements.
Federal financing through grants
Generally, the federal government does not finance small businesses through federal grants. However, for organizations offering support in terms of management, technical or financial assistance to small businesses these requirements are limited.
It should be noted that some US agencies do extend large amounts of money in the form of grants for specific purposes like research. Many small businesses have benefited from such grants especially when the federal government targets particular industries for funding.
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