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Finding SBA Venture Capital from an SBIC

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The U.S. Small Business Administration (SBA) and its partners help millions of existing and prospective small business owners start, grow, and succeed. They help with SBA loans, counseling, training and contracts. SBA also helps businesses and families recover from disasters with loans, and is a voice for small business, helping reduce regulatory impact. Each month, this section provides information to start, expand, and manage small business.

Emerging small business entrepreneurs absolutely must have access to capital in order to establish their prospects and achieve their goals. While there are many other tools and skills that are indispensable to entrepreneurial success, access to capital funding reigns supreme among them.

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 (SBIC) program. SBICs, licensed and regulated by the SBA, are privately owned and managed investment firms that provide venture capital and start-up 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, with repayment due over a period greater than one year. 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 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. You can visit the SBA Web site at http://www.sba.gov/INV/successstories.html and read success stories of companies like Apple Computer (Nasdaq: AAPL) and Staples (Nasdaq: SPLS).

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 the state or states where your company is located to find all of the necessary contact information about SBIC licensees, as well as information 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.

Small business success

Graham Solutions and the CargoCatch started, literally, from the ground up, when William Graham found himself punching holes in garden netting in the parking lot of his apartment complex in San Diego. He was attempting to build a cargo restraint device for his pickup truck. The CargoCatch is an innovative solution to pickup truck cargo management.

Soon after building his first prototype, Graham solicited the help of the Small Business Development and International Trade Center (SBDITC) and worked with consultants Richard Clarke, Esq., a patent attorney, on the filing, securing and licensing of a patent; Matt Yubas, a product coach who helped him with a detailed marketing analysis of his idea; and Wayne Lundbergh, an engineer who helped him with prototyping, engineering of certain parts for the project, mechanical training and finalizing the design for CargoCatch.

Graham Solutions has since landed a licensing contract with Pilot Automotive, known under the brand name of "Bully" and a Chinese version of his CargoCatch is being offered as "Pac Mule Cargo Holder," available in mass retail distribution. He also continues to make and sell via the Internet a "Made in the USA" CargoCatch. Additionally, his company now provides automotive accessory patent licensing consulting services to fellow entrepreneurs who have innovative product ideas for autos. Additional information on the CargoCatch and Bill Graham is available at www.cargocatch.com.

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