Small business and entrepreneurship form an
integral part of a healthy national economy. Of late various factors like
effect of privatization and specialization in the Industry, corporate
restructuring and downsizing have fueled the need of small and medium scale
business in the U.S.A.
The contribution in the society given by this
small business is recognized by each segment of the society, and it is evident
by efforts to aid the small businesses at federal, state, local level. Such
efforts range from new rulings of the Securities and Exchange Commission which
made simpler its filing requirements for small businesses going public by
offering stocks to the public. There are various sources used for funding by small
businesses, some of the important ones are discussed below:
Sources of Funding
Small Business Administration Loan (SBA)
The U.S. small business administration is the federal
agency which provides financial aid to the new and on going businesses. The
office of SBA exists throughout the United States in order to back small
businesses. The primary conditions for a loan are Business cash flows. Owners
with 20 percent or more ownership must personally guarantee the loan. As of now
there are three SBA programs, so an individual should contact the local office
or lender prior to the completion of an application to determine the plan best
suited for the company.
SBA administers a loan guarantee program for the
small business, which meets its criteria and also makes available the host of
other programs for the veterans, handicapped persons, minorities, and disaster
victims. Along with this there is also a hotline number maintained with SBA
which reverts to approximately 250,000 calls per year from the business person
all over the country and also issues various publications of interest to small
business.
Small business administration also backs funding of
Small Business development centers (SBDC’s), which are located in every state,
to provide direct assistance to entrepreneurs.
Local and state economic development organizations
Every state of U.S.A and various local
governments have economic development agencies which are devoted towards
assisting new and established business start, grow and succeed.
Angel Investor
The rich individuals who want to invest in an upcoming
business, much similar to a venture capitalist firm are known as Angel
Investors. The capital to the business is provided in exchange of convertible
debt or ownership equity.
Small Business Innovation Research Program (SBIR)
It is a highly competitive program that fuels and
provides aid to small business to explore their technological capability and
grant incentive to profit from its commercialization. SBIR reserves a certain
amount of federal R&D funds for small business. It protects the small
business and assists it to compete on the same level of a larger business. The
initial and the development stage of the Small business are funded by the SBIR,
and it also encourages commercialization of the technology, product, or
service, which in turn fuels the U.S. economy.
SBIR Qualifications:
·
American-owned and independently operated.
·
For-profit.
·
Principal researcher employed by business.
·
Company size limited to 500 employees.
Venture Capital
Generally, venture capital investors provide
funds to early-stage startup companies. These investors are concerned with
industries exhibiting high-growth potential, such as information technology.
Companies can get fund from the Venture Capital firms in exchange of company
shares. Venture Capitalists analyze the business plan before funding, which
demonstrates the success probability of the company.
Bank Loans
Banks provide short, mid or long term financing.
They also provide funds for all asset needs, including working capital,
equipment and real estate. The companies taking loans from banks need to
generate enough cash flow to cover the interest payments (which are tax deductible)
and return the principle.
Banks want a guarantee of repayment by requiring
personal guarantees and even a secured interest (such as a mortgage) on
personal assets. Banks, unlike other financial relationships provide some
flexibility to the companies as the company can pay the interest early and
terminate the agreement.
Online Lending
This is
also called peer-to-peer lending and allows the entrepreneur to skip normal
lenders such as banks, and get loans from other people. The entrepreneur
through peer-to-peer lending sites, states how much he needs and what interest
he can afford to pay over a predetermined period of the loan. Here, there is no
face to face contact thus the credit rating usually determines how much fund
any entrepreneur can get.
Others
The probable customer or clients may help to
start a business. Local and state economic development organization, customers,
vendors, friends and family members are some other sources through which the
small business can get funds.
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