photo credit: Marcin Wichary

When we started our company in 2002, venture capital was scarce, so we sought alternative ways to finance the business. The Small Business Innovative Research (SBIR) program, specifically the one offered through the National Science Foundation (NSF), is high quality source of funding. I have personally worked on proposals that have won awards from the Department of Defense (DoD) and the NSF totaling over $2.1 million. I am also a business reviewer for Phase II proposals for the NSF. I have both been through the proposal process and the selection process.

The SBIR Program

The SBIR program was created in 1982 as part of the Small Business Innovation Development Act. Eleven Federal departments and agencies are required under this act to reserve a portion of their R&D funds to be awarded to small businesses each year.

To receive an award under this program, a company must be American-owned and independently operated, for-profit, and under 500 employees. Additionally, the principal researcher must be employed at least 51% of the time by the business. There is still some debate as to whether venture-backed companies qualify if the VCs own more than 50%. Speak with the program manager to determine your eligibility if you fall in this category. Each agency determines its own topics and amounts for the awards (within parameters). The websites for all the SBIR programs are listed on the DoD SBIR webpage.

The Latest NSF Solicitation

The NSF has a fairly comprehensive website that covers the submission guidelines. Your life will be easier if you review this site long before the submission deadline. The deadline for the spring 2008 round has passed, but start thinking now about your possible submissions for the fall. The solicitation for the spring has been posted and the proposal is due on June 10th at 5:00 pm. This is a hard deadline and they will give you no leeway if you miss it. Each company may submit up to four proposals in one round.

The topics for this round include Biotech and Chemical Technologies, Software and Services, and Electronics, Components, and Engineering Systems.

The Phase I will be for no more than $100,000. You are usually notified four to six months after the proposal has been submitted. If you should win this grant, you will begin the grant period in late 2008 or early 2009. You get 2/3 of the money up front and 1/3 at the end. After six months of research, should you find success, you may apply for a Phase II grant up to $500,000. Again, you may apply in either January or July following the completion and, if successful, you will receive your funds in another six months: 25% up front, 15% at the end, and 20% three times during the course of the project. A Phase II is usually 24 months. Please note, that for the first year, you are spreading a small amount of money over a pretty long period. This is useful for funding some of your development with non-dilutive funds, but not particularly useful at providing working capital.

Winning Your Phase I

1. Understand the solicitation topic: they are very serious about sticking to the topics. The topics for this round are fairly broad, but if you have an advanced material that decreases the wind resistance on airplane, it doesn’t matter how fabulous it is, you will have to wait until the Advanced Materials solicitation. Call the program officer and find out if they are interested before you do all the work on the proposal.
2. Have an innovative technology. They are not interesting in funding improvements. Additionally, the proposal is reviewed by someone who really understands the technology. Don’t skimp on technical details because you assume the reader can’t understand it. If the program manager doesn’t understand what you are doing, they will find someone who does. You will not be successful if they don’t have the information necessary to understand what you are attempting to do.
3. Have a good commercialization plan. In Phase I, they are not expecting an extensive business plan, with a full marketing campaign defined. They are, however, going to expect you to have a good understanding of who might buy this product, why they would want to buy it, and what they might be willing to spend for it. They will also expect that the market be at least large enough to support your company as a commercial venture. And never, never say “there isn’t a market yet for my product because it’s so innovative” or “there are no competitors for my product.” When the car was invented, the market was everyone who owned a horse and wagon. Competitors were everything that could move a person from one spot to another.
4. Provide letters of support. It is actually a requirement for this solicitation, but even when it is not a requirement, it’s a really good idea. Good letters of support come from representatives of companies that will be interested in buying your product. In the best case, they will say that they will buy it, if you are successful. Often the easiest thing to do is write the letter yourself and ask the representative to copy it onto his or her company letterhead and sign it. If you include multiple letters, don’t provide the same copy to every supporter – it makes you look like an idiot.
5. Call the program officer well before the due date. Okay, I said this before, but it bears repeating in case you missed it. The program managers whom I have met are intelligent, dedicated people. They are very excited about these technologies and knowledgeable in their areas of expertise. They can be very helpful in developing your proposal. That being said, don’t pester them on little details, they are also very overworked. It’s probably a good idea to call sooner rather than later.
6. Let someone else read your proposal before you submit it. That someone should have a very strong command of the English language and should be able to let you know if the proposal reads well, presents the ideas clearly, and has perfect spelling and grammar. Also, don’t be clever in your presentation of the document. Times New Roman, 12 point, is the font of choice for newspapers, books and magazines for a reason – it’s easy on the eyes. Don’t make your reviewer’s job harder than it needs to be.

Some Technical Notes

1. You are required to submit your proposal through FastLane. Sign up with FastLane and start using it right away. It’s pretty easy once you get used to it, but occasionally there are technical glitches and they will happen to you if you wait until the last minute.
2. Get a DUNS number right away if you don’t have one. Call Dun and Bradstreet at (800) 333-0505 or find them online at http://www.dnb.com/us/. You will need a DUNS number to sign up with FastLane.

Winning Your Phase II

There is no official solicitation for a Phase II. If you have completed your Phase I NSF SBIR, you are eligible to apply for a Phase II grant. You may apply either the two following cycles, meaning if you completed your Phase I in December, you may apply either by January 31st or July 31st. The website has general Phase II proposal instructions.

Should You Apply?

When we are going through the proposals, they may be rejected for many reasons. Mostly proposals are rejected because they do not meet the technical or commercial hurdles required for a Phase II grant. That being said, we periodically hit a proposal that is rejected for other reasons that could have saved the company and the grant committee a lot of time.

If you did not get any positive results from Phase I, don’t bother to submit a Phase II proposal. We occasionally see companies who say basically, “my idea for Phase I didn’t pan out, but I have another idea on how to make this work, so I am submitting for support of that idea.” That is another Phase I proposal. It gets immediately labeled as such and put in the rejection pile. Don’t bother to submit that as a Phase II proposal.

If you are not confident of your results, check with your program manager. They should be willing to suggest areas that need shoring up and also should let you know if they don’t believe a Phase II proposal will get funded.

Writing Your Phase II Proposal

The number one reason why proposals get rejected is technical. The technical review team is made up of scientists and engineers in the field of study of the solicitation. The program managers have selected a panel that has deep knowledge in your area of research. They expect the technical portion of the proposal to look like any other grant, meaning they expect all the technical information needed to make a decision on the technology, backed up by references. I have heard many times on the panel, “Well, this looks interesting, but I don’t have enough information to determine whether it is feasible.”

If you have never been a university scientist, it behooves you to find one in your area of expertise and ask them to review your technical proposal before you submit it. The technical reviewers are extremely brutal and are unwilling to compromise their review standards.

The second reason, and much lower on the weighting scale, is the commercial section. I have seen a technology where the technical reviewers rave about in its innovativeness and brilliance, but the commercial reviewers can’t see a market at all, and the project gets funded. I have never seen a great business plan, with a mediocre technology, get funded.

The business plan is important though. Should your proposal be placed next to another with a similar quality of technology, the commercialization section can carry the day.

Your plan should clearly define the steps that your company will take to get from R&D to revenues. If you need to build a beta tool after the prototype has been completed, you should have a clear definition as to how you will fund it. Just so you know, everyone says, “we will raise venture capital.” Raising venture capital is easier said than done. If you are going to say that, make sure that you have some venture capitalists review your technology and write letters of support. Also, have alternative plans in case the VCs don’t drop money in your lap.

Also, a lot of proposals say things like, “We will partner with Honeywell to manufacture our first project. Five years later, we will have $50 million in revenue.” It seems that people put a lot of thought into getting the first product completed and are good at imagining what will happen in five years, but they seem to skip the whole process in between – which by the way, is the hard part.

Another commercialization issue is the lack of any business experience in the management team. If you can’t afford to hire some one, find some business advisers (and listen to them). You can start with your local S.C.O.R.E. office.

Finally, have someone read over your proposal. It should be written clearly, with no grammar or spelling mistakes. If you can’t find business advisers or someone to read your proposal, why would someone want to give (yes, give) you $600,000.

Click here to visit the NSF SBIR website. Good luck.

Ms. Worrall is the President of Worrall Consulting, LLC. Worrall Consulting is a finance and business strategy consultancy providing professional services to high growth, early stage companies. The company provides capital formation assistance, market research and business intelligence, and business planning strategy. More information about the company can be found at http://www.worrallconsulting.com .

photo credit: Alex Osterwalder

In the experience of many small businesses over the years, one thing is certain – no matter what type of business you start, it is going to require money from somewhere. Although many entrepreneurs are one-person companies, raising sufficient money is often overlooked seriously by many new startups. The word sufficient here is defined as the amount of money that will really make this business succeed through practical and aggressive means.

Most of the time, the passion of starting a new business overtakes common sense and a real clear idea of the startup and operating capital needed is lacking. So it is advised that when you consider shopping for money to start your business, that you do so after completing some form of a business plan. Even if you take money out of your own pocket or borrow on the equity on your home or from your credit card, it is essential that you know ahead of time that it will be well spent.

Let’s take a look at the most popular options for financing small companies.

Credit Cards

This is the easiest type of money to obtain. According to the Small and Medium Size Business Survey of 2007 by the National Small Business Association (NASB) credit cards are the number 1 financing choice of 61% of businesses of 0 to 4 employees. Frequently, the instant that a small business is formed, the owner takes the EIN number to the bank and starts a checking account. Oftentimes, these small business owners are encouraged to sign up for a credit card and offered favorable terms (sometimes 0% financing) for the first few months.

The problem with credit cards is that the interest rate is often very high at 15 to 20% + and according to the NASB, 71% of small and medium-sized businesses are carrying balances from month to month. This has grown from 64% in 2000. The amount of interest expense carried thus obviously affects profitability and cash flow. If credit cards are used as the principal source of financing, the situation is even worse because the amount borrowed is often higher in this case.

The advantage of credit cards is that there are no barriers to this form of borrowing. This is easy money to obtain. There is no system of checks and balances to ensure that the purpose for which the financing is being carried out is qualified by formal business planning and review.

Earnings of the Business

This may seem a bit obvious, but plowing cash back into the firm from earnings is a form of financing. It is important to keep that in mind, because the cash that becomes available from operations could alternatively be used as a distribution to owners or shareholders. Some of these owners may require that they receive distributions. Depending on the stage of the business, this could have deleterious effects on the business, with respect to growth.

Putting money back into the business should be done consciously, with a clear idea for what specifically the money will be used. If the money is getting put back strictly to grow inventory, it may take a much longer time to grow the business. However, if the money is getting put back to invest in systems and people that represent critical choke points in the current business operations, that is a much better plan for higher growth.

Line of Credit

This could come in the form of a business asset or home secured loan. This means that the bank will utilize the company’s property (equipment, building, accounts receivables) or personal property (usually your home) to ensure that they will obtain significant value in the event that you default on your loan. This is also a much easier form of loan to obtain however is best used for incremental financing not a major infusion of cash.

Bank Loan

One of the best strategies early in the business is to establish good relationships with a community bank in your area with assets around $100 to $200 million. Ideally, their investments in the sub-prime mortgage business are limited so that their interest in lending in general is not tainted. Discuss your business and forthcoming lending interests with the individual that has the final say so on the loan approval. Unsecured loans will be the only option for new businesses and usually have serious limitations on the amount that can be financed and usually comes with higher interest rates.

Private Equity Firms

These are venture capital or private investors that will invest in your business in return for some direct control (or say so) into company matters so that they can extract the return that they expect from your company. This requires that you carefully choose from people/firms with whom you develop a good rapport and that are familiar with your type of business.

Private equity is a good choice for small businesses that need to move to the next level due to limitations on the current business that presents obstacles to growth. This is because, the firms that will invest their money will want to see a good operating and financial track record before they inject their money.

Good advice for small companies at this level is to hire an investment banker. Although this carries a cost to achieve this financing, it allows the banker to attend to this specialized form of financing and allow you to keep focused on running your business. One thing is certain, you will be required to complete a formal business plan for this option.

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© Copyright – 2008 Frank Dobner

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If you have come up with a new idea or just want to finally start that business of your own, finding the capital you need to get started may be the thing getting in your way. It is no secret that many new business ventures fail because of insufficient starting capital. Well, you will be pleased to know that there is help available for startup businesses. In order to support the development of new business, the government and various organizations offer grants to new or expanding businesses. While this may sound very generous, it only makes sense since it is in the best interest of the country, and other businesses as well, to encourage new enterprises by investing new venture capital; thus giving life to the dreams of entrepreneurs and continuing to promote advancement in business and technology.

Finding the right grant for your new business is an important first step and may be the only way to get your business operational. You will be surprised once you start down his road that it is not as painful as you may have imagined. There many resources along the way to guide you through the process.

When figuring out your starting costs and the type financial assistance you will require, you need to consider many different factors. Grants are specialized and your specific needs dictate the place you should look. Location, future plans, and total dollars needed are all factors in deciding which type of funding you will need and which source is the best bet for your business. There are many Small Business Start Up Grants available at the local level, the state level, and the federal level. There are also grants provided by industry and large corporations. Doing thorough needs assessment will help you determine where to start looking.

You not only need to know where to apply for a grant for your new business, but you also need to learn how to apply for the grant once you find a source. There are online sites that give free information to those looking for grants for a startup business. Many of these sites take will take you through the entire process, including required research, business types, business plans, startup costs, business licensing, taxes, and funding.

For any grant to be considered an application must be filled out and written requests and descriptions must be provided. You will need to put in writing your business proposal, a summary of your business, grant justification, a project description, a yearly budget, your qualifications, and any outsourcing that may be done.

There are places that you can visit on the Web that will educate you in the process of applying for a grant. There are also sites that will teach you how to write a grant application step by step.

The Business Grant Steps Management is one such place. They can assist you in learning how to spend your time, writing business proposals, assessing your company’s needs, getting business clarity, and learning how to avoid scams.

Another site you may want to check out is called Women Owned Business Grants. This site is designed especially for women starting their own business, whether a home-based business or an office-based business. The site gives many suggestions as to where to look for government funding. It also provides information on start up ideas, setting up small business management.

Another place to check out is called Small Business Investment Company or the SBIC Program. Since 1958, this program has provided approximately $30 billion in both loans and equity investments to 90,000 small businesses since 1958. They represent a successful partnership between the Federal Government and private investors. There are SBIC offices nationwide. Each SBIC defines its own area of interest, specializing in specific industries or locations. Some of the most well-known businesses in America got their startup money from SBIC, Apple Computer and Staples for instance. Specialized Small Business Investment Companies, SSBIC, specialize in applications from economically or socially disadvantaged new businessmen.

Another well-known source of new business capital is The National Association of Small Business Investment Companies, also called NASBIC. This is another venture capital organization, actually, the oldest organization its kind. Any startup business owner may be wise to checkout out this source as a way to acquire the necessary funding for their new enterprise.

Every year, the government–local, state, and federal–gives away millions of dollars to people just like you for business ideas. Leon Edward shares information on government funding, Federal, State ,Local Grants , where to find start up grants, sources, free grant money CD, how best to fill out applications, grant management step by step tips, setting up a business steps at his website http://www.business-idea-grants.com

Get A Free Legitimate Home Based Business Report and Free Internet Business Library with Online Business Ideas, Free Training Newsletter at Leon’s Home Business Website http://www.homebusinessit.com

Leon Edward Helps people to start, grow legitimate Internet Based home business income with business structure, small business legal service information, step by step guides and online business training articles, reviews, marketing blog and newsletter… with legitimate business ideas and opportunities as top BBB rated home businesses, turnkey internet business, a 3 steps to internet income business proven MLMs, even a start free work at home program.

photo credit: Ange Soleil ( a.k.a Tweng )

In order to succeed as a business you need a definitive and solid understanding of your business’ finances. While many new small businesses are often times financed out of, you the owner’s pockets, most of the others need some extra funds from other sources in order to get off the ground. The truth is however, you need to be smart about your choices.

You need to be selective and pretty keen when it comes to finding finance for your business. A few wrong choices and you’ll find yourself along with your business in a lot of trouble. There are several methods to finance your business especially for small businesses. Here are five places where you can find finances for your business:

* One way to finance your business is through a business loan. Try researching the The Small Business Association for any loans available for what you are doing. They are one of the best sources of information for financing a business. Of all the sources of funding on this list, a loan will require to spend a lot of time and energy to do the legwork for it but it definitely will pay off in the long run. Make sure you have a well-written and clearly defined business plan in order to expect to be approved.
* Have you thought about possibly utilizing your home’s equity? Obviously this only pertains to those of you who own a house but it is a viable option if you do. You basically use the equity of your home in order to finance your business and allows for a tax deduction on the interest paid. Many savvy business owners use the combination of this in order to get the business loans discussed earlier. The only downside is that the security of your home ownership is now tied into the business’s success. If the business fails, you can lose your home.
* Another option often overlooked is the possibility of person to person lending. There are numerous personal investors out there looking to provide the appropriate funds in order to see a return on their investment. Some websites and businesses deal solely on brokering these types of deals. You can also approach friends and family members for money as well.
* One of the hottest trends in business finance is the use of investment financing. This can found in the form of venture capital firms and business partners looking to make an investment with the hope of receiving a return on it down the road. The only problem is that finding an investment group can time consuming and the process is sometimes not that easy. You even run the risk of giving up a percentage of ownership to the investor.

* The final option for you to choose from is the use of business credit cards. Many financial institutions will approve business with a credit card but it depends on a number of factors such as the amount of financing you need. I would only recommend this choice of financing is your business can afford to pay the high interest rates that come with these cards.

Merit Capital Advance looks at the big picture by offering a financing program that provides small businesses with fast business cash. It is the most convenient way to get a small business cash advance when you need it most. Visit Merit Capital Advance at http://www.meritcapitaladvance.com.