While most companies seeking venture capital initially think about the investors and venture capitalists, a large alternative source of funding for federal grants and loans. The two largest federal grant programs are administered by the Small Business Administration (SBA) and Small Business Investment Companies (SBICs).

An SBA loan, regardless of whether it is a direct loan from the SBA, or, as is more common, a bank loan guaranteed by the SBA, is essentially a bank loan. The benefit of it versus a traditional bank loan is the rate. SBA rates are often much less than rates of traditional business loan.

In most cases, a bank loan guaranteed by SBA, the SBA guarantees 90 percent of the loan will be repaid to the bank. As such, banks are much less likely that the majority of loans and are a little more flexible with regard to providing these loans. However, the SBA usually requires the founders of the company to personally guarantee the loans, which makes them at risk should the company collapse.

Alternatively, Small Business Investment Companies (SBICs) are private companies that organize licensed and regulated by the SBA. Small or new companies that can benefit from assistance from the SBIC program can receive equity and / or long-term loans from these companies. Basically, these companies provide their own capital, which is supplemented by federal funds, companies they finance.

Interestingly, U.S. taxpayers benefit from the SBIC program as tax revenues generated from successful SBIC investments more than cover the costs of the program. Also, the program has created hundreds of thousands of jobs.

In summary, SBA and SBIC financing alternatives to financing from investors and venture capitalists and should be considered in the process of raising capital. Like the angel and venture capital financing, companies seeking SBA and SBIC financing need a strong management team and value proposition, and a very professional and convincing business plan to raise the capital they need.