Finance for Small Businesses
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Getting financing for your new business might become easier in the coming months.
The Small Business Administration (SBA) is increasing funding to the Early Stage Innovation and Social Impact portions of its Small Business Investment Company (SBIC) program for the coming fiscal year, according to a June 7, 2013, announcement. The increases will enable the program to benefit more startups and social impact businesses—groups hit particularly hard in the current economy.
The SBIC program is a joint private-public venture that dates back to 1958. Each SBIC is privately owned and managed, but it is licensed and regulated by the SBA. An SBIC uses its own funds, which are borrowed with an SBA guarantee, to make both equity and debt investments in small businesses using their own funds.
The Early Stage Innovation program, one of three types of SBIC licenses, is designed to support companies in the earliest stages—before the company has a significant cash flow or asset base. According to the SBA, early stage financing between $1 million to $4 million are often referred to as the “Valley of Death” and only 6 percent of venture capital is extended to businesses in this phase. The SBIC Early Stage Fund is specifically designed to address this gap in funding options for startup businesses. The Social Impact program is designed to provide funding for businesses that have at least 35 percent of employees residing in low- or moderate-income areas or that are in the clean-energy or education sector.
Your business must be a "small business" to be eligible for SBIC financing. For this purpose, "small" generally means a business with tangible net worth of less than $18 million and an average net income of no more than $6 million over the previous two years. Plus, no foreign activities, real estate or passive activities are eligible for financing. The SBA webpage, “Is SBIC Financing Right for your Business?” provides information.
If your business qualifies for SBIC financing and you feel the type of financing offered is right for you, then you will need to do some research to find which ones of nearly 300 SBICs are the best match for your business—both in terms of your stage of development and your funding needs. The SBA offers a directory of the active SBICs that you can use for research. Other sources of information are
It is important to have a thorough and up-to-date business plan. Because of the sheer number of inquiries that each SBIC receives, it is also important to work closely with attorneys and accountants to build a network that can help with introductions to the lending professionals at your target SBICs.