Tag Archives: SBA

Funding For Startups

When talking about funding for startups, I continually find it interesting (and disheartening) that the business community so closely (exclusively?) associates “startups” with Venture Capital. In fact, a young entrepreneur recently told me that a business should not be called a “startup” until they begin searching for venture capital.

The Reality

That was a very naïve comment, and here’s why: According to the Kauffman Foundation, there were over 6.5 new businesses started in the U.S. during 2010. Also, according to PriceWaterhouseCoopers reports, there were 3,277 venture capital deals made during 2010.  Not very good odds.

So, where did the funding for startups come from to start the remainder of the 6.5 million new businesses?

Angel Investors

Certainly some financing came from Angel Investors, but their requirements are not that much different from the VCs. Angels usually precede VCs and get a company started before the VC becomes involved.

The data is elusive, but It appears that (certified) Angel investors may not have made substantially more deals than the VCs did. Even if they made 10 times as many deals as the VCs, that would only account for about one-half of one percent of the total startups for 2010.

Angel investors are actively coming together as “groups” that act on new venture deals as investing partners, just like the Venture Capitalists. The lone wolf angel investor is a dying breed.


Of course, no bank is going to provide funding for startups (other than, perhaps, a personal loan to the entrepreneur…if they have substantial collateral). There is also no indication that banks will begin more aggressive lending to businesses, especially small businesses, anytime in the foreseeable future.

Banks certainly are not the answer now, or any time soon.

SBA Loans

We need to remember that SBA loans are made by banks, not the government. SBA loans are only partially guaranteed by the government, and I have been told by many bankers that their SBA loans must meet the same borrower requirements as a non-SBA loan. Therefore, in reality, the SBA is not the answer either.


There is no such thing as a U.S. government grant available for the purpose of starting a for-profit company. There can be local “incentives” like tax postponement, subsidized property or facilities, etc., but finding grant money to start a for-profit business in the U.S. is like finding the Holy Grail.

While many of the economically emerging countries are offering strong incentives to entice American entrepreneurs to start businesses in their country, the U.S. seems paralyzed about doing anything to keep those businesses here, let alone expand our own business community.

Who’s Left?

Well, that still leaves something over 6 million new startup businesses without any realistic form of  outside funding. That means the primary sources of funding for startups available in the U.S. are: (1) the entrepreneur’s personal borrowing capacity, (2) family, and (3) friends.

Unfortunately, for nearly all of the over 6.5 million new U.S. businesses that will start up during 2011, the only investor decision that can be made is which family member or friend to approach first. Very sad.

How did you fund your startup business?


Business Funds for Veterans

Sadly, veteran owned businesses are at an all-time low. Fifteen years ago veterans owned around 20 percent of all small businesses, but today that number has dwindled to about 12 percent. Consequently, the U.S. Congress, through the SBA, has approved several programs to help veterans become entrepreneurs.

Here are three of the most popular:

  • Patriot Express Pilot Loan—This program is for all veterans and active-duty military people, including their spouses. However, this is a SBA “guaranteed” loan, which means the loan is made through a bank—thus requiring that you have a good credit history. Vets can borrow up to $500,000 with 85 percent of their loan guaranteed by the SBA. And since it is an “Express” loan, you will know within one day if you are approved. For more information, call your local SBA office or visit  http://www.sba.gov/vets
  • Military Reservist Economic Injury Disaster Loan—This special loan is for the small business that has a key employee, or the owner, called up for active duty. The concept is to loan the business additional operating money to help it either get through the period of absence, or recover from the temporary loss of a key individual. You have a year after the return of the key employee to apply for the loan, or you can apply immediately upon the notice of call-up (a good idea if it is the business owner). For more information, call your local SBA office or visit http://www.sba.gov/vets
  • Veterans Transition Franchise Initiative—This is not a loan program; it is a government-sponsored program that gives ten to 20 percent off franchise fees at almost 400 different franchising companies. This program works well for the vet who either has the additional money, or can raise it, to cover the remainder of the franchise fee, plus any operating capital requirements, and who prefers to work within the structured franchise model. For more information, visit http://www.vetfran.com

These are special programs set up to help veterans returning from active duty, or while on active duty, so don’t hesitate to take advantage of them if entrepreneurship is in your future.