Small agencies are an essential part of the yank economic system. In line with the country-wide Federation of independent business (NFIB), they deliver the kind of fifty-five percent of all jobs inside the personal quarter, and that they generate approximately half of all privately generated Gross home products (GDP), in line with some estimates. There are over 27 million small corporations inside the united states of America. They may be self-hired, domestic-primarily based, net-based, and owned by using guys, girls, and minorities, generating a very huge variety of modern services and products. But they maintain to warfare in securing financing to begin or develop their organizations.
Small groups have usually relied on business banks for enterprise loans. The boom in financial institution consolidations has resulted in large banks, making it tougher for the small commercial enterprise owner to at ease funding for their business. Given that more than 60% of small companies rely on credit strains and loans, and the bulk of this financing comes from the banking sector, small groups are increasingly seeking out greater assets to fund their groups.
The coolest news is that there are many different assets available for small commercial enterprise owners, consisting of authorities-subsidized loans, and grants. The primary distinction between the two is that loans need to be repaid; offers do not. But, the U.S. Authorities, recognizing the crucial position that small corporations play in our countrywide financial system, lately introduced the provision of hobby-free ARC loans. Presents and ARC loans offer two additional sources for small business funding which might be worth investigating.
Offers are not loans. Offers are loose money that does not need to be repaid. Government grants are offered best to neighborhood and nation, academic, and public housing businesses, and non-earnings, and do not practice to begin-ups. Similarly, the authorities may additionally offer some specialized offers to companies engaged in environmental efforts like electricity efficiency and recycling, as well as companies that educate teens and senior residents on the contemporary generation. That’s why they’re referred to as “special reason offers.” So, in which do other small agencies go for grant money?
Grants are available from local government agencies and private corporations and organizations. Some of the private sources include trusts and foundations such as the Gates Foundation, the Lilly Endowment, Ford Foundation, Hasbro Industries Charitable Trust, W. K. Kellogg Foundation, the Kipling Foundation, Clorox Company, Allstate Foundation, and International Paper Company. Each source has its guidelines on what type of business will qualify for grant money, and the business owner must meet the criteria. Grant money can be as small as $500 or as large as $5 million. The application process is long and tedious, requiring the applicant to present a solid business plan. The competition for grants is keen with no guarantee that the applicant will receive the money. But for small businesses who qualify and are willing to tough it out in order to get free money, it is worth it.
Business loans in general differ from grants in that they need to be repaid, with interest. In addition, grants are based on the presentation of a well-written business plan, while loans are based on credit scores and often require collateral.
Recently, however, the U.S. government announced a new program of interest-free loans called ARC (America’s Recovery Capital) loans, an extension of the 2009 Recovery Act, offered through the U.S. Small Business Administration (SBA). ARC loans provide up to $35,000 (one time only) of interest-free money specifically to small business owners to help them pay down debt on other loans. In essence, it buys them time to get back on their feet. The loans are available until September 30, 2010, or until the funds are depleted (only 10,000 loans are available), and are offered through SBA lenders only. SBA pays the fee to the lenders; the borrower pays back only the principal. Other specifics on ARC loans include:
Only private, for-profit enterprises up to 500 employees are eligible; non-profits are not eligible
Business must be at least two years old
Business must demonstrate an immediate financial hardship
Loan money can only be used to pay off existing outstanding small business debt
Loan money is paid out to the borrower over a six month period
Repayment of the principal begins after the last loan disbursement is received
The borrower has up to five years to repay the loan principal
The new ARC loans offer both advantages and disadvantages. The advantages include instant cash flow improvement, more money to re-invest in the business, and more time to restructure the business and position it for future success. For some small businesses, it is just what they need to survive. For others, the disadvantages include the strict criteria for qualification and use of ARC loan money. In addition, unlike grant money that does not have to be repaid, ARC loans need to be repaid. So, a small business owner who meets the qualifications must present a solid business plan that convinces the SBA lender they will be in a position to repay the loan within the time period allotted. That is the risk for the borrower, the lender, and the SBA who is guaranteeing the new ARC loans.