Funding for For-Profit Businesses

This post is written with the goal of assisting individual businesses in their own search for funds as opposed to looking at the broader picture of economic development in a particular city or county. I would strongly recommend that for-profit businesses approach the economic development offices in their area first. Many localities have programs which assist local business. Two examples of locally-administered programs are facade improvement programs in downtowns and revolving loan funds. Most of the time, these programs are funded with monies from the federal or state government. Their goal is to improve local economic indicators, such as the unemployment rate and assessable base.

Economic development departments can also be extremely helpful to individual businesses in that most of them are the referral point for state and federal programs which can help them. Obviously, there is a variation in the services provided by different economic development offices depending on their budget and staffing. Most of these offices provide a complete referral service to local businesses and assist them throughout the entire process up to and including the submittal of the applications for assistance. Most of the time, these services are free.

If your city or county does not have an economic development office which assists local business, the next step would be to contact the state’s economic development department. Most states have specific agencies dedicated to business development and administer financial assistance programs. The business owner would be well advised to either contact the relevant staff member or to search the website.

The major federal agency charged with assisting small business is the Small Business Administration (http://www.sba.gov). SBA provides help in the form of counseling, financial assistance, and expert advice regarding contracting opportunities with the federal government.

S.C.O.R.E. (Service Corps of Retired Executives) is a nonprofit organization which partners with SBA in order to provide free advice and low-cost workshops to small businesses. There are 364 chapters of this organization, which is comprised of working and retired business executives. Its name is therefore a bit misleading. The website can be found at www.score.org/index.html.

Small Business Development Centers throughout the country counsel small businesses on their management strategies. These centers are organized to provide for cooperation between the private sector; the educational community; and federal, state and local governments. Women’s Business Centers provide assistance to the female entrepreneur. SBA also provides help to businesses interested in going international.

SBA provides assistance to help small, disadvantaged, and female businesses receive federal government contracts. The agency has a program to provide surety bond guarantees. This helps contractors who cannot obtain bonding through regular channels. These bonds are required for many government-funded projects. If the contractor fails to complete the project, the surety bond will pay the project owner for the cost of the uncompleted work.

Venture capital is a type of private equity capital usually provided for companies that are just starting out and which have a lot of potential in exchange for shares in the company. It is provided through Small Business Investment Companies, which are privately-owned and managed investment funds regulated by SBA. These companies are permitted to borrow funds at favorable rates from SBA in order to provide operating money.

Most of the financial programs provide loan guarantees. The agency’s primary program is referred to as “7(a)”. This program provides a guarantee to a bank loan which is structured to SBA requirements. Businesses may not participate in 7(a) if they have access to other borrowing at reasonable terms.

The Small Business Innovation Research (SBIR) program provides for-profit businesses with the opportunity to access a reserved portion of federal research and development funds. A company applies to become an SBIR firm on a competitive basis. Eleven federal departments participate in the program. In order to qualify, a firm must be American-owned, have less than five hundred employees, be a for-profit concern, and have the principal researcher employed by that business. Funds are provided for the start-up and development phases.

The Small Business Technology Transfer (STTR) Program provides joint ventures involving small businesses and nonprofit research institutions with an opportunity to access a special reservation of federal funds. Five federal agencies participate in this program. This is done in recognition of the fact that small businesses often do not have access to research and nonprofit research institutions do not have the means to translate that research into commercial ventures. The qualifications for participating in this program are the same as the SBIR program except that the principal researcher need not be employed by the small business. The nonprofit research institution must be a federally funded research and development center.

Federal funding for small businesses may also be found at Grants.gov. In order to see the universe of grant opportunities available for small businesses (or businesses of any size) go to the site and only specify the type of applicant, leaving all other search fields blank. The searcher may specify one of the following: opportunities which are open to small businesses; those which are open to businesses which are not considered to be small; and those which are unrestricted, meaning that any type of entity may apply. Just to give the reader an example, I conducted this type of search on Grants.gov in late October of 2009. Of the total of 1184 grant programs which were open for applications at that time, 647 were open to small businesses, 615 were open to businesses other than small concerns, and 165 were unrestricted.