Venture Capital Opportunities for Small Businesses

Counted among the nation’s most powerful homegrown companies, AOL, FedEx, Intel and Apple all share another common bond: These multibillion-dollar companies each started thanks to venture capital fostered by the U.S. Small Business Administration.

Today, each of those companies generates more than $30 billion in annual revenue. But in the early going, they all turned to small-business funding to get off the ground.

An injection of capital from a Small Business Investment Company fueled the rise of these business and technology behemoths. Known as SBICs, these private venture capital firms are licensed by the SBA, part of the agency’s array of financial assistance programs aimed at helping spur innovation and job creation among American entrepreneurs.

Those four companies now employ close to 500,000 people. They generated a staggering $152 billion in combined revenue last year, with AOL ($46 billion) leading the charge. FedEx and Intel each generated $37 billion, while Apple brought in $32 billion.

Those gaudy numbers wouldn’t be possible without small-business assistance.

SBICs are allowed to use tax dollars to bolster their private capital reserves, so long as they help providing funding to qualified small businesses. Any business that meets the SBA’s requirements as a small business is eligible to receive funding from an SBIC.

Fledgling businesses often use this money as startup funding. More established small businesses can dedicate the capital to development and strategic growth.

For example, Intel used a $300,000 investment in 1969 to push toward a technological breakthrough. Two years after receiving that funding, the company produced the world’s first microprocessor, a significant turning point that heralded the age of personal computing.

In the wake of the American Recovery and Reinvestment Act of 2009, small business owners can now tap into a $2 billion pool of venture capital. The SBIC program has funneled more than $55 billion in funding to more than 100,000 small businesses since its founding in 1958.

SBA Loan Programs

But the partnership with private venture capital firms is just part of the SBA’s commitment to helping small businesses. The agency’s operates several key financial assistance programs for entrepreneurs. The two main loan assistance programs are:

•    The 7(a) program
Named for a section of the Small Business Act, the 7(a) program provides a guaranty of up to 90 percent for loans to small businesses. It can be used for multiple purposes, including the purchase of equipment and real estate, renovations and refinancing.

•    The 504 program
This program helps business owners gain long-term, fixed rate loans for major assets, such as real estate or buildings. Borrowers are required to put up at least 10 percent equity. This program comes with more restrictions on uses than the 7(a) program.

Fees have been reduced for both of these loan programs in recent months.

Surety Bonds for Small Businesses

Hoping to spur continued economic growth, the SBA also recently increased its surety bond guarantees for public and private contracts. The agency can now guarantee bonds on contracts valued up to $5 million for small business. There are even special circumstances for public projects that extend the value up to $10 million.

The increases are a big deal for small business owners, who often struggle to purchase surety bonds through traditional avenues.