Entrepreneur Plus - Short White
For Subscribers

The Venture Capital Infusions Federal incentives mean more money for VC firms--but what do they mean for you?

By Carol Tice

Opinions expressed by Entrepreneur contributors are their own.

The Venture Capital Infusions

It's not often that America's small businesses get $2 billion in federal funds set aside just for them. But that's what happened when President Obama signed the American Recovery and Reinvestment Act this February.

Better known as the stimulus bill, the ARRA changed the rules for a little-known SBA program that loans money to qualified VC firms called Small Business Investment Corporations, or SBICs. SBICs, which are licensed by the SBA as federally funded VC firms, can tap SBA funds to supplement the venture capital they've raised privately, taking twice as much federal money as they've raised on their own, up to a limit.

The 50-year-old program pays for itself through fees and loan payments by the SBICs. The program has loaned more than $50 billion over the years to companies including Apple, FedEx and Outback Steakhouse.

All of the funds given to an SBIC must be used to fund small businesses, which the SBA defines as companies with no more than $18 million in net worth, or $6 million in after-tax income in the prior two years. Any business fitting this description can approach SBICs for funding. Within this pool, some of the funding each SBIC gets must go to "smaller" businesses, which the SBA defines as having no more than $6 million in net worth and an after-tax profit cap of $2 million.

Another plus to the program: the SBA makes sure a diverse group of venture firms are included in the SBIC pool, so there are VCs interested in funding small businesses in virtually every sector and funds focused on every investment stage--from startups needing seed capital to mature companies seeking money for growth initiatives.

$2 Billion Rule Changes
Restrictions on the SBIC program meant only $1 billion of the $3 billion available for loan to the SBICs was used last year. Few new SBICs have been approved in recent years due to a long and difficult qualifying process. Plus, funding limits stopped existing SBICs from borrowing more.

Among the rule changes intended to put more SBIC money into circulation:

Continue reading this article — and all of our other premium content with Entrepreneur+

Join the internet’s leading entrepreneur community! With your subscription you’ll get:

  • Access to all of our premium content and an ad-free experience
  • A complimentary subscription to Entrepreneur Magazine
  • Four free e-books a year and 20% off everything from our bookstore
  • Exclusive events with business celebrities and successful entrepreneurs

Editor's Pick

She's Been Coding Since Age 7 and Presented Her Life-Saving App to Tim Cook Last Year. Now 17, She's on Track to Solve Even Bigger Problems.
I Helped Grow 4 Unicorns Over 10 Years That Generated $18 Billion in Online Revenues. Here's What I've Learned.
Want to Break Bad Habits and Supercharge Your Business? Use This Technique.
Don't Have Any Clients But Need Customer Testimonials? Follow These 3 Tricks To Boost Your Rep.
Why Are Some Wines More Expensive Than Others? A Top Winemaker Gives a Full-Bodied Explanation.

Related Topics

Growing a Business

The Best Way to Run a Business Meeting

All too often, meetings run longer than they should and fail to keep attendees engaged. Here's how to run a meeting the right way.


Working Remote? These Are the Biggest Dos and Don'ts of Video Conferencing

As more and more businesses go remote, these are ways to be more effective and efficient on conference calls.

Growing a Business

Subscribers Exclusive Event: Discover How These 2 Founders Turned Their Side Hustle into a Million-Dollar Lifestyle Brand

Learn how you can transform your personal brand into a thriving business empire with co-founders of The Skinny Confidential


Take Your Social Media Earning Potential Sky-High With This $79.97 Quadcopter

Get this beginner-friendly drone for a great price for Father's Day.

Health & Wellness

Sleep Better, Snore Less, and Stay Cool with This Tech-Packed Pillow, Now $49.99

Let technology help you sleep better with this 8-in-1 cooling pillow.


How do You Turn Employees Into Problem-Solvers? Follow This 3-Step Leadership Formula.

As leaders, we need to solve company problems effectively. We often have the urge to fix everything quickly, but is this system of problem-solving really sustainable?