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How Does Government Assist Business: Programs, Loans, & Grants

How Does Government Assist Business: Programs, Loans, & Grants

COVID-19 has thrown the U.S. economy into disarray. From supply chain bottlenecks to a series of lockdowns, these past few years have truly challenged the fortitude of small business owners. With countless small businesses closing up shop due to rising debts, inflation, and lack of human resources, the U.S. government stepped in to assist the country’s front liners in driving the country’s economy.

So, how does government assist business owners? They implement these government assistance programs, loans, and grants to help small businesses rise to their feet once again.

Loans

Federal loans are cash loans administered by the government with the expectation of being paid back with interest. Various federal agencies oversee affordable loan programs for small businesses that seek capital and financial assistance for their company.

Managed by the Small Business Administration (SBA), the 7(a) Loan Program is one of SBA’s primary financial assistance programs. Small businesses can apply for loans at justifiable terms by fulfilling a set of special requirements.

The 7(a) Loan Program applies to most small business endeavors, such as:

  • Funding for short or long-term capital
  • Current business debt refinancing
  • Acquisition of material assets, such as real estate, furniture, supplies, and more

For a standard 7(a) loan, the maximum loan amount is capped at $5 million. The approved loan amount will vary depending on several factors, such as credit history, business industry, and physical location of the business.

Furthermore, there are different types of 7(a) loans a small business can avail of depending on their current status and needs.

Key eligibility factors are based on what the business does to receive its income, its credit history, and where it operates. The lender will help the small business owner determine which type of loan is best suited for their needs.

  • Standard 7(a) Loan – This is the most common type of 7(a) Loan with a maximum ceiling of $5 million.
  • 7(a) Small Loan – This type of 7(a) Loan is capped at $350,000.
  • SBA Express – Unlike the usual 5-10 days turnaround time for 7(a) Loans, SBA Express can be granted within the next 36 hours. It has a maximum loan amount of $500,000.
  • Export Express – This 7(a) Loan is made explicitly for exporters and lenders needing a streamlined source of federal funds.
  • Export Working Capital – For small business owners in the trade and export industry who need additional working capital to support their company.
  • International Trade – To ensure American small businesses remain globally competitive, the SBA offers this long-term financing assistance to small business owners in the trade and export industry who are expanding or have been adversely affected by imports.

Learn more about the terms and conditions of each type of government assistance loan here.

Small business owners looking to acquire or upgrade major fixed assets that will promote job creation and company growth can apply for a 504 Loan. Capped at $5 million, this type of loan is helping small businesses in:

  • Purchase existing lands or buildings
  • Construct new buildings
  • Acquire long-term machinery and equipment
  • Upgrade land, utilities, streets, landscaping, and parking lots
  • Modernize existing facilities

Eligibility Requirements: 

  • Be a certified for-profit organization based in the U.S. or its territories.
  • Tangible net worth should be less than $15 million.
  • The average net income for the past two years should be less than $5 million after federal income taxes.
  • Microloans

Small business owners looking for a $50,000 or less credit can apply for microloans through SBA’s designated intermediary lenders. Funding from microloans should not be used to pay existing debts or purchase real estate. Instead, small businesses can channel their microloans to fund the acquisition of the following:

  • Working capital
  • Supplies
  • Inventory
  • Fixtures
  • Furniture
  • Equipment
  • Machinery

Eligibility Requirements: 

Eligibility and loan application requirements differ depending on the intermediary. Search for the nearest SBA-approved intermediary here.

  • Disaster Loan

From devastating storms to a global pandemic, the SBA offers low-interest loans to disaster-stricken small businesses. This type of loan is not only limited to small businesses, but companies of all sizes as well–may they be organized for profit or not.

Here are the four types of disaster loans that businesses can apply to:

  • Physical Damage Loans – This loan covers repairing and replacing lost or damaged assets due to a declared disaster.
  • Mitigation Assistance – Small businesses who were forced to halt their operations during a declared disaster can apply for federal funding through this loan.
  • Economic Injury Disaster Loans – Small business owners and non-profit organization leaders who have suffered personal losses due to a declared disaster are eligible to apply for this loan.
  • Military Reservist Loans – If an employee of a small business was called to active duty, the SBA can offer to help cover the operating costs.

Grants are federal financial aids used in helping small businesses research, develop, and innovate.

Grants

Government grants are financial or economic aid given by the federal, state, or local governments to qualified entities for a public purpose. Unlike loans, benefactors are not required to repay the federal government most of the time. However, since grants are typically used for public projects, businesses must compete with other entities.

Federal grants support various recovery, research, and development initiatives. The federal government publishes available grants in the Assitance Listings section at SAM.gov.

To thrive in the field of research and development, a business should have the financial and technical resources to innovate. However, small businesses usually don’t have the resources to invest in state-of-the-art tech. So, it is no surprise that well-renowned companies dominate this industry.

However, that doesn’t mean small businesses can’t innovate. In fact, they are one of the core drivers of development in the U.S. economy.

Administered by the Small Business Administration (SBA), the Small Business Innovation Research (SBIR) program offers grants to eligible small businesses to participate in the federal research and development arena. The SBIR program fosters commercial innovation in the private sector through federal funding.

Eligibility Requirements:

  • The participating small business should be a for-profit organization based in the U.S.
  • The participating small business should be owned and controlled by more than 50% American citizens or permanent resident aliens of the United States.
  • The small business should employ no more than 500 employees, including affiliates.

Similar to the SBIR program, the Small Business Technology Transfer Program (STTR) also gives grants to small businesses operating in the R&D field. The only difference is the STTR program requires small businesses to partner with a recognized research institution formally.

Eligibility Requirements:

The requirements for participating small businesses are identical to the SBIR program. However, the partner nonprofit research institution should satisfy the following conditions:

  • The partner institution should be located in the U.S.
  • The partner institution should be categorized as any of the following:
    • Nonprofit college or university
    • Domestic nonprofit research organization
    • Federally Funded R&D Center (FFRDC)

Established companies invest their resources on small business to help them grow.

Investment Capital

Opening a new small business can be challenging, especially given the current economic client. To jumpstart aspiring small business entrepreneurs, the Small Business Administration can link them up with a licensed Small Business Investment Company (SBIC).

An SBIC is an SBA licensed and regulated privately-owned business that invests in small businesses through debt and equity financing. SBA earmarks a certain amount of financing to SBICs to encourage these entities to invest in small businesses.

Learn more about this financial assistance program here.

Government Contracting Assistance Programs

Winning government contracts in the local government or a federal agency can be challenging for small businesses. Not only is it complex, but corporate giants already dominate the government contracting field.

To encourage more small businesses to enter the federal government contracting market, the federal administration made government programs more accessible.

  1. Women-Owned Small Business Federal Contracting Program

Despite living in modern times, there are still industries where women-owned businesses remain underrepresented. To level out the playing field for them, the federal government gives special consideration to women-owned small businesses in federal contract awarding.

Women-owned small businesses (WOSB) and economically-disadvantaged women-owned small businesses (EDWOSB) are entitled to compete for exclusive government contracts that are reserved for small businesses, or set-asides.

To apply for the WOSB or EDWOSB program, review this in-depth guide.

  1. Veteran Assistance Programs

To support the uniformed personnel that served the country well, the federal government offers veteran assistance programs easier access to government contracts and surplus properties.

Veteran-Owned Small Businesses and Service-Disabled Veteran-Owned Small Businesses are given special access to bid for set-aside contracts. Depending on which category the small business falls into, there are different eligibility requirements that need to be met.

Additionally, eligible veteran-owned small businesses can access excess federal-owned supplies and properties through General Services Administration’s (GSA) Federal Surplus Personal Property Donation Program.

  1. 8(a) Business Development Program

As part of the federal government’s thrust to encourage new businesses to enter the government contracting industry, financing programs, such as the 8(a) Business Development Program, are available to everyone.

Under this government assistance program, qualified small business owners will have access to:

  • Set-aside contracts and sole-source set-aside contracts
  • One-on-one business development and technical assistance from SBA’s Business Opportunity Specialists
  • Opportunity to be mentored under the SBA Mentor-Protégé Program
  • Procurement and compliance experts who can help businesses navigate the government regulation in the contracting industry
  • Joint venture opportunities with an established company
  • Federal property surpluses
  • Free training and management counseling through the SBA 7(j) Management and Technical Assistance Program
  1. HUBZone Program

The location where a small business is set up is a huge factor that either contributes to its success or downfall. However, not all small business owners have the luxury to afford to set up their businesses in a prime location. So for businesses located in Historically Underutilized Business Zones (HUBZone), the federal government earmarks 3% of federal contract dollars for them.

Like other contract assistance programs, the HUBZone program entitles its beneficiaries to compete for set-asides. Federal departments will give preferential consideration to them for full and open competition bids.

Small businesses located in a HUBZone and its workforce consisting of at least 35% of people who live in the HUBZones can apply for this program. Here is the self-certification portal of SBA to gauge the business’s preparedness and eligibility.

  1. 7(j) Management and Technical Assistance Program

Small businesses often have a hard time navigating the government contracting industry. So under this federal assistance program, small businesses will receive high-quality training to equip them with the skills to compete for prime or subcontract opportunities in the local, state, and federal governments.

The 7(j) Management and Technical Assistance Program offers one-on-one training in critical areas such as accounting, marketing, strategic & operational planning, government regulation compliance, and more.

To become eligible for this program, a business should be headquartered in an area where unemployment is rampant and the income threshold is low. Additionally, only companies participating in the 8(a), economically-disadvantaged women-owned small business, and HUBZone programs are qualified to participate. The requirements for this government assistance program are elaborated further here.

There are a lot of factors to think when setting up a joint venture, such as clauses aimed to protecting intellectual property developed during the contract period.

  1. Joint Venture Program

Established corporations usually form a joint venture with a small business to expand their pool of opportunities: corporations can bid for set-asides, and small businesses will have access to resources that can boost their growth. However, the SBA regulates joint ventures between a small business and an established corporation to maintain fairness in the partnership.

When forming a joint venture, here are the things that a small business should keep in mind:

  • Assess business readiness
  • Decide how the work will be split
  • Choose a joint venture partner that they can synergize well
  • Draft a joint venture agreement
  • Prepare an exit strategy

Learn more about how to set up a joint venture here.

Government Regulations

Government regulations were set in place to keep the commercial marketplace fair to all players, whether they may be small businesses or giant corporations. However, there are almost 90,000 government regulations and federal laws on businesses that are being implemented across the country. To navigate this web of regulations, seek a compliance expert.

Here are the primary categories of government regulations on businesses that should be taken note of:

  1. Labor and Employment Regulations

This includes the set minimum wage in the federal & state government, as well as unemployment insurance.

  1. Tax Regulations

For-profit businesses are all required to fulfill their civic duty of paying their taxes.

  1. Advertising and Privacy Regulations

These regulations defend consumers from untruthful advertising and protect their sensitive information from being used other than what it is originally intended.

  1. Environment Regulations

To mitigate the worsening effect of climate change, environmental regulations are in place to prevent companies from exploiting nature further.

  1. Antitrust Regulations

To keep a fair and open market, these regulations prevent monopolization and the act of limiting the participation of new players.

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