Small Business Association Government Agency set-up to help facilitate the devel

Question

Small Business Association
Government Agency set-up to help facilitate the

development of small businesses
Small Business Innovation Research (SBIR)

Supports and oversees small business innovative research and technology transfer

Small Business Investment Company (SBIC) Created in 1958 to fill the gap between the

availability of venture capital and the needs of small businesses in start-up or growth situations.

What is the main difference between the SBIR and SBIC in terms of their funding source?

Explanation / Answer

SBIR sources funding from 11 qualified federal agencies such as the US Department of Defense, National Institute of Health, National Science Foundation, US Department of Agriculture, US Department of Energy and more. Funds are allocated as % of the total extramural budget of these 11 federal agencies. Funds are usually in the form contracts and/or grants subject to meeting conditions such as commercialization potential of the recepient R&D, prerequisites set by the US Government for R&D funding,etc. The stated objective of the SBIR which is run by SBA is to support and facilitate scientific research, technical innovation,technology transfers and excellence through grant of federal research grants so as to strengthen the innovation component of the national economy.

SBIC is a private lending company licensed and functioning under authority and under supervision of the SBA to support funding needs of small businesses and budding entrepreneurs. The funding is managed through separate independent investment companies which are around 300 in number and all functioning under the SBA dictum. Funding is raised majorly through private equity or from high net worth private individuals (much like Venture Capital Funds). The raised funds are guaranteed by the SBA which lend a high degree of credence to them.The SBIC funds need business owners to meet certain crieteria's regarding the net cash flows,profits and revenue of their small businesses. The process to set up SBIC is long drawn out and is similar to that of opening a new bank. SBIC lending take the form of equity participation, long term dent, subordinated debt,etc.

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