Opinion: SBA helps start-ups access venture capital

Among the many ways in which the U.S. Small Business Administration helps emerging small businesses obtain seed and growth capital is through its Small Business Investment Company program.

SBICs, which are licensed and regulated by the SBA, are privately owned and managed investment firms that provide venture capital and startup financing to small businesses.

Successful long-term growth for most businesses depends on the availability of equity capital. Lenders generally require some equity cushion or security (collateral) before they will lend to a small business. A lack of equity limits the debt financing available to businesses. Additionally, debt financing requires the ability to service the debt through current interest payments. These funds are then not available to grow the business.

Debt capital is represented by funds borrowed by a business that must be repaid over a period of time, usually with interest. Debt financing can be either short-term, with full repayment due in less than one year, or long-term period. The lender does not gain an ownership interest in the business and debt obligations are typically limited to repaying the loan with interest. Loans are often secured by some or all of the assets of the company.

Equity capital is represented by funds that are raised by a business in exchange for a share of ownership in the company. Equity financing allows a business to obtain funds without incurring debt or without having to repay a specific amount of money at a particular time.

Although investors are committed to a company for the long haul, that does not mean indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments. A good investor will be considering potential exit strategies from the time the investment is first presented and investigated.

Their investments are often the seed money that helps small companies grow into big companies. Among the household name companies that got help from SBA-backed SBICs in their early stages are America Online, Apple Computer, Callaway, Compaq, Federal Express, Intel, Outback Steakhouse and Staples - companies that today employ tens of thousands of people across America and around the world and bring in billions of dollars in revenue.

You can visit the SBA Web site at www.sba.gov/INV/successstories.html and read the stories of their success.

A section of the SBA Web site is devoted to SBA's most important customer, the entrepreneur. Whether your business is in the early stages of development or already thriving and seeking growth capital, we want to help you determine if venture capital financing is right for your company - and if so, who in the SBIC community might be willing to consider an investment.

The SBA does not invest directly in small businesses. Instead, SBA licenses and helps fund venture capitalist firms to evaluate and invest in promising small companies.

Entrepreneurs interested in the SBA's SBIC program can visit www.sba.gov/INV. It includes several useful articles on venture capital for entrepreneurs, including “How to Seek SBIC Financing,” “Venture Capital 101,” and “A Venture Capital Primer for Small Business.”

The page also includes a directory of more than 400 operating SBICs, listed by state. Just click on a state to find all of the necessary contact information about SBIC licensees, as well as information where available on investment criteria, investment size range, type of capital provided, funding stage preference, industry preference, geographic preferences and a description of the firm's focus.

Sam Jones is Region 7 administrator of the U.S. Small Business Administration, serving Missouri, Kansas, Iowa and Nebraska.

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