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Financing a Business in USA

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Financing a Business in USA

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Financing a Business in the US

Raising capital is the most basic of all business activities, but it may not be easy; in fact, it is often a complex and frustrating process. However, if you have studied and planned effectively, raising money for a business in the USA will go as smoothly as possible.

Bank financing: the first place to start looking for a loan is with your local commercial bank or lending institution. The lender will have all the forms you'll need to apply for a government-backed loan, and will work with the government on the application process. Usually US government agencies do not make loans directly to business owners. The government provides a guaranty to banks and lenders for money lent to businesses. This guaranty is a promise to pay a portion of the loan back to the bank in case a business owner defaults on the loan.

Public aid: you should also look to your state and local government agencies and local non-profits. Some of these organizations make loans directly to businesses, which means you won't need to go through a bank. There are literally hundreds of government loans available. Each loan program has unique application and eligibility requirements, however, most lenders ask for the same information for you. Before you apply for a loan, you should get some basic documentation together that will go into just about any loan package. Check also the databases of www.grants.gov and www.cfda.gov for more opportunities, in particular if your business is involved in scientific and technology research and development.

Venture capital funding. This grants are typically provided to early-stage start up companies that have high growth potential in industries such as biotechnology, information technology and manufacturing. Venture capital investments are generally made as cash investments in exchange for shares in the company. The programme is called Small Business Investment Companies (SBIC): to be eligible for SBIC financing, your business must meet certain size requirements for a small business. Generally, the SBIC Program defines a company as "small" when its net worth is $18.0 million or less and its average after tax net income for the prior two years does not exceed $6.0 million. You'll need to present a professional business plan that addresses your company's operations, management, financial condition and funding requirements.

Specific sectors aid. Major grant programs provided by federal government agencies are available in specific sectors. You need to browse the websites of the following institutions to find opportunities:

  • Education: U.S. Department of Education
  • Humanities: National Endowment for the Humanities
  • Libraries and Archives: National Archives and Records Administration
  • Museums: Institute of Museum and Library Services
  • Visual and Performing Arts: National Endowment for the Arts
  • Employment and Labor Grants: U.S. Department of Labor
  • Housing: U.S. Department of Housing and Urban Development
  • Law Enforcement: U.S. Department of Justice
  • Cancer Research: National Cancer Institute
  • Health Care Services: U.S. Health Resources and Services Administration
  • NIH Grants: National Institutes of Health
  • Energy Sciences Grants: U.S. Department of Energy
  • Environmental Grants and Fellowships: Environmental Protection Agency
  • Natural Resources: U.S. Fish and Wildlife Service
  • Scientific Research Grants: National Science Foundation
  • Small Business Research and Development Grants
  • Technology Grants: National Institute of Standards and Technology
  • Telecommunications: National Telecommunications and Information

Tax-Exempt Bonds

Tax-exempt, industrial revenue bond programs are attractive financing options for small manufacturers looking to expand operations and upgrade facilities. Eligible users of the funds include expanding facilities and purchasing new machinery and equipment. Tax-exempt bonds are debt securities issued by a state or local government development agency on behalf of a private business. Once issued, tax-exempt bonds are sold in the open market or purchased by investors or financial institutions.

Tax-exempt bonds are similar to conventional loans, but they are not grants. Applicants have to demonstrate a strong business plan and project proposal, creditworthiness and strong financial statements. In addition, borrowers have to demonstrate how proposed projects will create jobs and positively impact the local economy.

Tax-exempt bonds are not for modest projects. Typically, bonds are intended to fund projects over a million dollars, but smaller, mini-bonds may be issued. In addition, the costs associated with tax-exempt bonds tend to be much higher than conventional loans because the business has to pay its own legal costs. Carefully consider your financing needs and your ability to pay tens of thousands of dollars in legal fees before jumping into tax-exempt bonds. If you want to check your elegibility follow this link: http://business.gov/business-law/contacts/state/economic-development.html and browse by State.

Tax-exempt bonds of up to $10 million can be issued to finance up to 100% of an eligible project.

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