The Top 3 funding options for your early-stage startup and how to access them
For the extremely lucky [0.1% of 1%] new founders who receive funding for their startup off PowerPoint decks, life is good and there is nothing to worry about. With the “Great Resignation” underway in America, more people than ever before are starting their own ventures. Over 4 million Americans quit their jobs in September 2021 coinciding with a record number of new business applications.
If you are a new or prospective startup founder in the United States and not lucky enough to have unlimited funds to start your business, this guide explores the several government initiatives in place to help get your startup off the ground.
Grants — Federal and Local
Funding of up to $2 million with few strings attached (no equity) to bring your idea to life. Sounds too good to be true? The Small Business Innovation Research (SBIR) Program is offered by twelve participating federal agencies including National Science Foundation (NSF), NASA and the Environmental Protection Agency. The program offers early-stage founders funding to help bring innovative, potentially impact making technologies to market. This funding is particularly useful for deep technology companies who have significant R&D spends and very long time to market.
The government agencies support various initiatives that align with their mandate and the awards work in different ways. For example, for the NSF, the funding is in 3 stages — up to $256,000 for research and development (R&D) , a Phase II award of up to $1 million over 24 months and supplements of up to $500,000.
Bootstrapped founders often look to entrepreneur competitions to give them a boost and some cash. In April 2022, the SBA announced the launch of America’s Seed Fund Startup Expo 2022, a new initiative to identify innovative startups and supporting them with resources to help them scale, grow, and thrive.
The Small Business Technology Transfer (STTR) program is also managed by the Small Business Association and offered by the same twelve government agencies. The key difference from the SBIR is that the STTR requires small businesses to form partnerships with a research institution.
For very early stage founders going solo, the National Association for the Self-Employed (NASE) offers growth grants of $4,000 every month to one small and micro-business owner. To be eligible for the funding, the business would have to be a member of the NASE for a minimum of 90 days. The association also provides legal and business guidance, life insurance benefits, and discount programs.
Fund Your Startup Through Loans
Any founder starting a business in 2021 would be forgiven for thinking equity from a VC is the only source of funding for a new business. Before the explosion of venture capital, debt was the default option for big and small businesses alike wishing to expand. SBA-guaranteed loans for businesses starting up and expanding are offered through more than 800 lenders across all 50 states of the United States. Loan amounts range from $500 to $5.5 million for a range of purposes.
The SBA’s Lender Match tool matches small businesses with the most suitable lender close to them. The main criteria for the loans are that applicants must (i) be for-profit (ii) be operational and based in the United States (iii) have invested equity from its founders and (iv) demonstrate they wouldn’t be able to obtain loans from commercial lenders.
The US department of Treasury has announced up to US$353 million support for four new state plans under the State Small Business Credit Initiative (SSBCI) in President Biden’s American Rescue Plan. The states benefiting from this initiative are Delaware, Kentucky, Tennessee, and Wyoming to support local small business financing and investment programs. Each state has its own focus but they cut across capital access, loan participation, early stage venture capita, accelerator and seed capital programs. See the Treasury website for more details.
For startups that have commenced operations and are incurring payroll and R&D expenses, the Internal Revenue Service (IRS) offers up to $250,000 tax credits annually. The R&D Tax Credit has been in existence since 1981 but only became more applicable to startups recently when the IRS expanded application of credits to payroll taxes rather than only income taxes.
Qualifying startups can apply tax credits against their social security tax obligations as long as the company makes less than $5 million in revenue and is less than 5 years in operation.
Across the US, states and local authorities also offer financial support in form of tax and other incentives to attract and retain startups. For instance, California offers tax incentives in different forms, loans and business development support. Similar initiatives are available across the entire country to help entrepreneurs start and scale.
Get Help with Your Applications — Financial Modelling Simplified
One item Lenders, the SBA and other capital providers require from small businesses is a financial model (financial projections or financial forecast) for the business. Most founders without a finance background find this challenging and expensive.
Caena is the quickest and most affordable way to generate simple charts, graphs and reports for pitch decks, business plans and funding applications. Read our customer testimonial about a similar process (SEIS / EIS) in the UK here. The tool is also useful for accelerator applications and investor conversations.
For financial projections that get you funded, we have got you covered!