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From the
Blog Small Business Administration (SBA) loans
should be easier to get (theoretically) in the future. According
to the
Associated Press, the SBA has eliminated fees for its 7a and
504 small business loans. In addition, $15 billion in TARP money
will be used to buy current SBA loans from the banks, thereby
freeing up capital that can be used for new SBA loans.
The TARP program, which stands for Troubled Asset Relief
Program, has gotten a nasty reputation as a bank bailout program
funded by the taxpayers. Although there was the expectation that
TARP funds would be used to loosen credit to make new loans, the
reality is that most recipients have used the funding to shore
up liquidity and protect against loan losses.
Perhaps new program changes increasing the amount of each
loan the government will guarantee from 75-80% to 90% will help.
If the lenders have less risk, they should be willing to make
more loans.
For more details, see the
Congressional Research Report.
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Access to the funding needed to start a business is almost always an issue, especially
with those owned by African, Hispanic (Latino), or Asian Americans, who are more likely to
lack the financial resources necessary to achieve adequate capitalization. A 2000
report published by the
U.S.
Minority Business Development Agency concludes that the growth of Minority Business
Enterprises (MBE or MWBE) has contributed to the strong growth of the U.S. economy, but
that growth cannot continue without removing capital formation constraints.
There two basic ways to fund a business: debt and equity. Debt
financing involves borrowing funds from a lender with the promise to repay.
Loans can come from friends and family, or from lenders in the public or private sector.
By far, the most popular small business lending source in the public sector is the
Small Business Administration. The SBA does
not actually make loans - they merely guarantee that the borrower will repay the loan back
to the lender, typically a bank. Therefore it makes sense to look first to a bank
who is a
certified or preferred SBA
lender.
Click here to see which
banks do the most SBA lending. Most of the SBA's programs are oriented toward
small businesses in general, however their
Prequalification Pilot Loan Program
is focused on MBE or MWBE firms.
Equity financing means funds are raised by selling a share in the business to
investors. At the startup and infancy stages of a new venture, investors are
typically friends and family of the founders. The next stage of financing often
comes from "Angel" investors, who are individuals willing to invest their own
money in new ventures, usually in the range of $20,000 to $100,000 per venture. If
you are looking for Angel investors, check out
Active Capital,
Keiretsu Forum,
and
Diverse Strategies. The next stage of equity funding will typically come from "Venture Capital"
firms, whose business it is to find high potential ventures to invest money raised from
individuals, companies, or other financial institutions. As with Angel investors, VC
firms vary greatly in terms of areas of interest and size of investment. In general,
most VC's are looking for deals over $1,000,000.
Click
here for Yahoo's directory of venture capital resources.
For more information on
starting and running
a business, please see our sister site at Diverse
Strategies.
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