3 Key Points Startups Need to Know about Government Financing

By Karlene Sinclair-Robinson

When startup business owners are backed into a corner with their businesses, it usually boils down to financial liquidity. Many are bootstrapping their way up the entrepreneurial ladder. Startups often see their funds dwindle so quickly that they cannot stem the financial hemorrhage before they bottom out, potentially requiring them to shut down their businesses before they fully get started.

Some are able to use collateralized loans to move their business forward.  Other startups considered options including family and friends, credit cards or microloans. These business owners are always on the look-out for ways to get their hands on a much-needed cash infusion. Financial liquidity is vital to survival or growth opportunities. Cash flow is the name of the game. When cash flow projections do not match up, startups can get desperate.

1.       FREE GOVERNMENT MONEY  

Not too long ago, the question was asked as to “where to find FREE Government Money?” First, most established business owners should know by now that there is no such thing as “Free Government Money”. When startups and those considering starting a business look for financing, they often seem to have this mistaken assumption that there is some form of “Free Government Money” out there just waiting for them.  If this was the case, there would be a really long line of business owners waiting for their share of this money.

The government does not just give away money. You have to qualify for any given program, contract, grant or otherwise. If your business fits the requirements for a given government program, then take action to start the process. Keep in mind, when there is money involved, there is always some return that must be gained.

2.       STARTUP GRANTS

Many startups figure their business would be a good fit for a grant. Winning a grant does not happen overnight. It takes determination and tenacity, for sure. In order to win a grant, your business must fit the grant requirements.  Based on a social or economic need, government grants are awarded to appropriate organizations that can provide the qualified solutions to fix the problem.  These organizations are primarily classified as “non-profit” or “not-for-profit” entities. It is important the individuals and startup businesses learn this early only on and not was time trying to finance a “for-profit” business with a grant.

3.       SBA Loans

It is often a mistaken assumption that the U.S. Small Business Administration (SBA) finances businesses.  This assumption is only correct in the event of a “declared disaster area”. In all other instances, the SBA does not lend or finance businesses. They approve qualified financing sources such as banks and Certified Development Companies (CDCs). These companies make loans that the SBA will provide a “guarantee” for repayment in the case of the business owner defaults on the loan.

Another assumption that is incorrect is thinking that the SBA is a “non-profit” organization. This is absolutely not true. They are a department of the U.S. government solely focus on the needs of small business.

These are just some of the important parts of business financing that must be understood. Learning the relevance of key opportunities to finance and grow your business will help you make strategic decisions going forward. Success to you.

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