The Maryland Entrepreneur's Guide/Federal Financing

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Chapter 1 Private Financing

Chapter 2 Maryland Financing Programs

Chapter 3 Federal Financing

Chapter 4 Incubators

Chapter 5 Business Enterprise Programs

Chapter 6 Opportunities for Business Growth

Chapter 7 Tax Credit and Incentive Programs

Chapter 8 Intellectual Property Protection

Chapter 9 Choice of Entity

Additional Resources


Conditions of Use; Contributor's Disclaimer


U.S. Small Business Administration (SBA) Guaranty and Loan Programs[edit | edit source]

SBA Generally[edit | edit source]

For over 60 years the US Small Business Administration (“SBA”) has helped small business owners by counseling, financial support, contracts and other forms of assistance. The SBA's programs now include financial and federal contract procurement assistance, management assistance, and specialized outreach to women, minorities and armed forces veterans. The SBA also provides loans to victims of natural disasters and specialized advice and assistance in international trade. Assistance is given primarily through its four programmatic functions: (1) Access to Capital (Business Financing); (2) Entrepreneurial Development & Education; (3) Government Contracting & Federal Procurement; and (4) Advocacy for Small Businesses.

SBA Loan Programs:[edit | edit source]

The SBA provides small businesses with an array of financing for small businesses, including microloans, venture capital, substantial debt obligations and loan guarantee programs. For more information see the SBA Loan Program webpage.

Basic 7(a) Loan Program[edit | edit source]

The 7(a) Loan Program includes financial help for businesses with special needs. Loans are available for businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes.

(i) Special Purpose Loans. The SBA offers several special purpose 7(a) loans to aid businesses that have been impacted by NAFTA, to provide financial assistance to Employee Stock Ownership Plans, and to help implement pollution control mechanisms.

1) CAPLines- an umbrella program that helps small businesses meet certain working capital needs.

(2) CAIP- the Community Adjustment and Investment Program, which is directed to assist businesses affected by the North American Free Trade Agreement.

(3) Pollution Control – a program specifically designed to help businesses that are reducing their environmental impact(as of 2011 this program is not currently offered due to lack of appropriations).

(4) Employee Trusts Program- a program that provides financial assistance to Employee Stock Ownership Plans.

(ii) Express Programs - programs that offer expedited loan procedures for select borrowers, particularly active military, veterans and borrowers from distressed communities.

(iii) Export Loan Programs- programs designed to aid small businesses expand their exports.

(iv) Rural Business Loans- Loans made to aid the small community/rural based lender in streamlining the loan process to aid businesses in local communities that have suffered economic loss and high unemployment.

(v) 7(a) Loan Proceeds may be used to establish a new business or assist in the acquisition, operation or expansion of an existing business, including any of the following:

(1) Purchasing land or buildings or new construction;

(2) Purchase of equipment, machinery, furniture, fixtures, supplies or materials;

(3) Working capital needs;

(4) Financing existing inventory under special conditions;

(5) The refinancing of existing business indebtedness that is not already structured with reasonable terms and conditions; or

(6) To purchase an existing business.

(vi) Advantage 7(a) Loan Initiatives are aimed at increasing the number of loans to small businesses and entrepreneurs in underserved communities.

(1) Maximum Loan Size $250,000.

(2) Loan Guarantee of 85% for loans up to $150,000 and 75% for loans greater than $150,000.

7(m) Loan Program or MicroLoan Program[edit | edit source]

The MicroLoan Program provides small, short-term loans to small businesses and certain not-for-profit. The Loan is subject to the following limitations:

(i) Maximum Loan amount is $50,000 (average loan is $13,000).

(ii) Maximum loan term is 6 years.

(iii) Interests Rates vary based on Intermediary, but have been between 8% and 13%.

(iv) Permitted Uses:

(1) For working capital

(2) Purchase of inventory, supplies, furniture or fixtures

(3) Purchase of machinery or equipment

CDC 504 Loan Program[edit | edit source]

The CDC/504 loan program is designed to encourage economic development within a community by providing small businesses with long-term, fixed rate financing for expansion or modernization.

(i) Typically, a CDC/504 project includes:

(1) A loan secured with a private lender with a senior lien for 50% of the project cost.

(2) SBA provides a 100% guaranteed debenture and a junior lien for up to 40% of project cost.

(3) Borrower must contribute 10% of project cost as equity.

(ii) Permitted use of 504 Loan Funds:

(1) For the purchase of land and existing buildings, improvements, utilities, parking or landscaping.

(2) For the construction of new facilities or modernization, renovation or conversion of existing facilities.

(3) For the purchase of machinery & equipment.

(4) The loan cannot be used for working capital, inventory or refinancing debt.

(iii) In General:

(1) The borrower must be Small Business with SBA Size Standards.

(2) The minimum loan is $1.5 million.

(3) Collateral and personal guarantees of owners are required.

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Small Business Innovation Research Program (SBIR)[edit | edit source]

The SBA’s Office of Technology administers the Small Business Innovation Research (SBIR) Program. The SBIR is aimed at ensuring that small US, high-tech, innovative businesses play a significant role in the federal government's research and development efforts. For more information see

Eligibility Criteria[edit | edit source]

(1) Must be American-owned and independently operated;

(2) Must be for-profit;

(3) The principal researcher must be employed by the business;

(4) and, the company size limited to 500 employees.

Participating Federal Agencies[edit | edit source]

Each year, eleven federal departments and agencies are required by the SBIR to reserve a portion of their R&D funds for award to small business. These agencies include:

(1) Department of Agriculture

(2) Department of Commerce

(3) Department of Defense

(4) Department of Education

(5) Department of Energy

(6) Department of Health and Human Services

(7) Department of Homeland Security

(8) Department of Transportation

(9) Environmental Protection Agency

(10) National Aeronautics and Space Administration

(11) National Science Foundation

SBIR Application Process[edit | edit source]

The application is a Three Phase Program

(1) Phase I is the startup phase. Awards of up to $100,000, for approximately six months, support exploration of the technical merit or feasibility of an idea or technology.

(2) Phase II awards up to $750,000, for as many as two years, expands Phase I results. During this time, the R&D work is performed and the developer evaluates commercialization potential. Only Phase I award winners are considered for Phase II.

(3) Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding.

The SBA Role - The SBA plays an important role as the coordinating agency for the SBIR program. It directs the 11 agencies' implementation of the SBIR, reviews their progress, and reports annually to Congress on its operation.

Intellectual Property Rights[edit | edit source]

Participation in the SBIR program and the STTR program (discussed below) requires the small business to allocate certain intellectual property rights to the government. Although some exclusions can be made for intellectual property developed prior to participation in either program, care must be exercised in reviewing the contracts to ensure that the maximum protection available to the small business is obtained.

The Small Business Technology Transfer Program (STTR)[edit | edit source]

Like the SBIR Program, the STTR is a small business program that provides funding opportunities in the federal innovation research and development arena. This program focuses on the expansion of public/private sector. Central to the program is the expansion of the public/private sector partnership to include joint venture opportunities for small businesses and the nation's premier nonprofit research institutions.

Eligibility for For Profit Entities[edit | edit source]

(1) Must be American-owned and independently operated;

(2) Must be For-profit;

(3) The principal researcher need not be employed by small business;

(4) and, the company size is limited to 500 employees.

Eligibility for Non-profit Research Institutions[edit | edit source]

(1) There is no size limit.

(2) Must be located in the US.

(3) Must meet one of three definitions.

(4) Must be for a Non-profit college or university,

(5) or a domestic nonprofit research organization.

(6) Must have a federally funded R&D center (FFRDC).

List of Participating Agencies.[edit | edit source]

(1) Department of Defense

(2) Department of Energy

(3) Department of Health and Human Services

(4) National Aeronautics and Space Administration

(5) National Science Foundation

These agencies designate R&D topics and accept proposals.

Application Process.[edit | edit source]

The participating agencies make STTR awards based on small business/nonprofit research institution qualification, degree of innovation, and future market potential. Small businesses that receive awards then begin a three-phase program.

(1) Phase I is the startup phase. Awards of up to $100,000 for approximately one year fund the exploration of the scientific, technical, and commercial feasibility of an idea or technology.

(2) Phase II awards of up to $750,000, for as long as two years, to expand Phase I results. During this period, the R&D work is performed and the developer begins to consider commercial potential. Only Phase I award winners are considered for Phase II.

(3) Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No STTR funds support this phase. The small business must find funding in the private sector or other non-STTR federal agency funding.

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Small Business Investment Company (SBIC)[edit | edit source]

Small Business Investment Companies (“SBICs”) are government-supported private equity funds which make investments in American small businesses under licenses granted by the U.S. Small Business Administration (“SBA”). Once licensed, SBICs must comply with SBA regulations.

The SBA’s Investment Division administers the SBIC program. The Investment Division is located at the SBA’s national headquarters at 409 Third Street, SW, Washington, D. C. 20006.

The SBIC program was created by Congress in 1958. Since 1958, SBICs have invested over $55 billion in small U. S. companies. In the fiscal year ending on September 30, 2009 alone, SBICs participated in nearly 2,700 financings, investing $1,856,000,000 in 1,481 small businesses.

Many major American small businesses were assisted by SBIC financings during their early years. These include: Intel, Apple Computer, Federal Express, JetBlue Airways, Staples, Outback Steakhouse, Radio One and Build-a-Bear Workshop.

As of April, 2010, there were 311 licensed SBICs in forty-three states. There were 35 SBICs in Maryland and its contiguous states; however, most SBICs operate on a regional basis, and therefore many SBICs located east of the Mississippi River are potentially interested in investing in Maryland small businesses. A directory of all currently licensed SBICs can be found at

The most salient factor of the current SBIC program is that low interest government loans, known as “Leverage”, are customarily made available to SBICs in the form of “Debentures”, which are ten year unsecured loans under the terms of which interest must be paid to the government semi-annually.

The practical effect of the semi-annual interest requirement is that SBICs must necessarily invest most of their capital in cash flow positive companies that will be able to pay interest to the SBICs semi-annually so that the SBICs in turn will be able to pay the SBA interest on the Debentures semi-annually. The Debenture program is thus well suited to the mezzanine investing model. This means that SBIC investments in private companies are typically structured as debt (generally unsecured or with a junior secured position) bearing a significantly higher interest rate than normal bank loans, and the SBIC further obtains an equity “kicker” in the form of warrants. The SBIC will generally either obtain a seat on the company’s board of directors or at least observation rights at board meetings.

Virtually every Small Business Investment Company (“SBIC”) is organized as a limited partnership. The limited partnership is generally set up with an initial ten-year life. The working assumption of the SBA is that for the first five years the SBIC will make investments in portfolio companies and for the second five years the SBIC will exit those investments. Because of the relatively short time horizon of SBIC investments, the SBIC will generally negotiate alternate exit options at the time that the SBIC financing is arranged. Further, because most SBICs derive most of their income from their equity “kickers”, SBICs are most interested in investing in small, rapidly growing firms with solid business plans and capable management.

Further information about the SBIC program can be obtained from the official SBA website:

For more information see

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Cooperative Research and Development Agreements (CRADAs)[edit | edit source]

CRADAs are written agreements between one or more federal agencies and one or more non-federal parties. A CRADA allows the federal government and non-federal partners to optimize their resources, share technical expertise in a protected environment, share intellectual property emerging from the effort, and advance the commercialization of federally developed technology.

CRADAs were created as a result of the Stevenson-Wydler Technology Innovation Act of 1980, Public Law 96-480, as amended by the Federal Technology Transfer Act of 1986, Public Law 99-502. CRADAs are authorized by 15 U.S.C. §3710a et seq. and are subject to applicable government agency regulations.

Purpose[edit | edit source]

CRADAs allow government researchers to exchange technical expertise with non-federal partners and to accept reimbursement for research conducted under the CRADA. CRADAs are appropriate when ideas, staff, materials, equipment is to be exchanged over a period of time for the purpose of collaboration when an invention may result. Money can be provided to a government agency under a CRADA.

The government may contribute a wide variety of resources, including personnel, services, facilities, equipment, intellectual property, and any other resources that would fall under the umbrella of “personnel, services and property.”

The government may not contribute funds.

Participation[edit | edit source]

CRADAs must involve at least one non-federal party. In addition to government scientists, the other participants in a CRADA may be one or more of the following: private corporations (U.S. or foreign), nonprofit and not-for-profit institutions (U.S. or foreign), individuals (U.S. or foreign), state and local governments (U.S.), and other federal agencies (U.S.)

Small businesses generally receive special consideration. Businesses located in the U.S. that agree that the products embodying inventions will be substantially manufactured in the U.S. receive preferential treatment.

In case of an entity under the control of a foreign government, consider if that foreign government permits U.S. entities to enter into CRADAs or licensing agreements.

Agreement[edit | edit source]

A CRADA is not a procurement contract or grant and should not be viewed as an alternative to normal procurement procedures. Generally, the governmental agency provides a standard document to begin negotiations. The parties may negotiate some of the provisions.

Proposals & Information[edit | edit source]

There is no central listing for CRADA opportunities, which arise periodically. Information may be obtained by contacting government agencies or laboratories relevant to your industry directly. Each government agency or laboratory will provide a description of any existing CRADA opportunity and procedures for entering into a specific CRADA. Additionally, prospective CRADAs are often advertised in the Federal Register:

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Small Business Concern[edit | edit source]

A small business concern is a business organized for profit with its principal place of business in the United States, that does not exceed the numerical size standard for its industry.

These entities are self-certified, and do not need a complicated application process typically required in the other programs identified above. This is intended to insure that funds earmarked for small businesses go to small businesses and most of the programs referenced hereunder require that the applicant firm meet the size standards established by the SBA for its specific SIC or NAICS industry code. These size standards set forth the total annual receipts that can be received by each entity and, in some circumstances a cap on the number of employees that an applicant firm has to still be considered as a small business.

This is one of the broadest categories and there are certain contracts available for small business concerns regardless of social or economic disadvantage as may be required under other SBA programs. For example, a temporary placement agency for employees cannot have annual receipts in excess of more than $6.5 million a year to qualify. For more information, please see

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Small Disadvantaged Business Concern (SDB) & 8(a) Program Small Disadvantaged Business Concerns[edit | edit source]

Participants under the 8(a) program and the SDB program receive broad assistance from the Small Business Administration (the “SBA”) intended to assist socially and economically disadvantaged firms with competing in the market. It is a nine-year business development program that provides counseling, marketing and technical assistance to small business certified for participation.

The exception is that the SDB program strictly pertains to benefits in federal procurement. 8(a) firms automatically qualify for SDB program. For more information, please see

Eligibility[edit | edit source]

To be eligible for 8(a) or SDB treatment eligible firms must be (i) a small business, (ii) unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the US and (iii) who have demonstrated the potential for success. On February 11, 2011, the SBA adopted new rules regarding the 8(a) program which take effect on March 14, 2011.

Gender is not currently enough to qualify as belonging to a socially disadvantaged class and typically 8(a) programs are reserved for minority businesses.

In order to establish that an individual is economically disadvantaged the personal adjusted gross income of the individual cannot exceed $250,000 averaged over the past three years initially, and $350,000 for continued eligibility.

In addition, in order to establish that the applicant firm is economically disadvantaged, the owner may not have a personal net worth (after excluding the individual’s equity in the firm and equity in their primary residence and IRA accounts) of more than $250,000 initially or $750,000 for continuing eligibility.

Moreover, the applicant cannot have total assets that exceed $4 million for initial eligibility and $6 million for continued eligibility.

The SBA also considers the individual’s average two-year income, fair market value of all assets owned by the individual owners, the access to capital and credit available to the individual and the financial condition of the applicant firm in determining economic disadvantage

Benefits[edit | edit source]

Certified SDBs are eligible for special bidding benefits and the SBA offers incentives to prime contractors to award contracts to eligible 8(a)/SDB firms.

These benefits include:

1) Evaluation credits to prime contractors to increase and create subcontracting opportunities for SDBs and for meeting certain SDB subcontract targets.

2) Listing on PRO-Net, an on-line registry of SDB-certified firms, that can be searched by contracting officers and large business prime contractors for potential suppliers.

3) Price evaluation adjustments of up to 10 percent when bidding on federal contracts in certain industries and under certain circumstances to prevent SDB firms from being outbid by larger companies who have greater economies of scale. The price credit or price evaluation adjustments are not available for industry categories where benchmarks are not required. In addition, the price evaluation adjustments do not apply to 1) procurements that are below the simplified acquisition threshold of $100,000; 2) procurements that are set aside for small business; 3) procurements under the SBA 8(a) program.

Certain business planning and business development tools, particularly in the area of procurement.

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Veteran Owned Small Business Concern & Service Disabled Veteran Owned Small Business Concerns[edit | edit source]

A Veteran Owned Small Business Concern (VOSB) is a small business concern of which not less than 51 percent is owned by one or more veterans; and one or more veterans control the management and daily operations of such firm. A service-disabled veteran owned small business concern (SDVOSB) has the same criteria as a VOSB, except that the 51% also must be owned by a veteran that was wounded and became disabled in connection with his or her service in the armed forces. In each case the veteran must control the management and daily operations of the business and hold the highest officer position in the business.

Both types of concerns may self-certify their status through the provision in FAR 52.219-1.

Many government agencies have established a set-aside program for service-disabled veterans.

In addition, there are potentially certain procurement preferences for small business concerns owned and controlled by service-disabled veterans. The SBA may consider a service-disabled veteran as disadvantaged for the purposes of the Section 8(a) program on a case-by-case basis, which would grant SDVOSB firm additional benefits. For more information, please see

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Woman-Owned Small Business Concerns (WOSB)[edit | edit source]

The WOSB program promotes the growth of women-owned businesses through programs that address business training and technical assistance, and provides access to credit and capital, federal contracts, and international trade opportunities.

This is a self-certifying program governed by the SBA and should not be confused with the MBE/DBE/program affiliated with the Department of Transportation that has more stringent certification procedures.

It is not uncommon for a federal contractor to require a WOSB firm to provide evidence of certification, and the MBE/DBE program discussed below may assist in providing such certification. For more information, please see

Eligibility[edit | edit source]

Women-owned small business concern is a small business concern

(1) which is at least fifty-one percent (51%) owned by one or more women who are US citizens; or, in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more women; and

(2) whose management and daily business operations are controlled by one or more women.

An economically disadvantaged WOSB or (EDWOSB) is a WOSB whose owners are economically disadvantaged. A woman is presumed economically disadvantaged if her personal net worth is less than $750,000 (with some exclusions); her adjusted gross yearly income averaged over the three years prior to certification is less than $350,000, and the fair market value of all of her assets is less than $6 million (with some exclusions).

Exclusions from the personal net worth calculation are as follows:

1) The ownership interest in the EDWOSB.

2) Equity in the primary personal residence.

3) Any income received from the EDWOSB that is an S Corporation, LLC or partnership if the woman can demonstrate that the distributions were reinvested into the entity or used to pay taxes arising in the normal course of business.

4) IRA funds or other official retirement accounts that are unavailable until retirement age without a significant penalty.

Benefits[edit | edit source]

There are annual goals established by the government to have at least five percent (5%) of the total value of all prime contract and subcontract awards for each fiscal year to be awarded to WOSBs. Contracting officers may set aside contracts in 83 NAICS industries where WOSB's are underrepresented or substantially underrepresented. For more information on the NAICS codes affected, please see The set aside can only occur if the contracting officer has a reasonable expectation that two or more WOSBs or EDWOSBs will submit offers for the contract and the anticipated contract price is not greater than $5 million for manufacturing contracts and $3 million for other contracts.

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