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Nimra Irshad

06-27

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ROLE OF THE SBA IN SMALL-BUSINESS FINANCING

The SBA offers numerous loan programs to assist small businesses.

The SBA is a guarantor of loans made by private and other institutions.

The Basic 7(a) Loan Guarantor is the SBA’s primary business loan program.

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This program helps qualified small businesses obtain financing when they cannot obtain business loans through regular lending channels.

The proceeds from such a loan can be used for a variety of business purposes, such as working capital; machinery and equipment; furniture and fixtures; land and building.

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To get loan, entrepreneur must be eligible.

Eligibility factors for all 7(a) loans include size, type of business and the availability of funds from other sources.

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RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS

R&D limited partnerships are another possible source of funds for entrepreneurs in high-technology areas.

This method of financing provides funds from investors looking for tax shelters.

A typical R&D partnerships arrangements involves a sponsoring company developing the technology with funds being provided by a limited partnership of individual investors.

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Major Elements

The three major components of any R&D limited partnership are the:

Contract The sponsoring company The limited partnership

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Contract

The contract specifies the agreement between the sponsoring company and the limited partnership.

The sponsoring company does not guarantee results but rather performs the work on a best-effort basis.

There are some tax advantage for both the limited partnership and the sponsoring company.

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Limited Partners

The limited partners have limited liability but are not a total taxable entity.

Any tax benefits of the losses in the early stages of the R&D limited partnership are passes directly to the limited partners.

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The Sponsoring Company

The sponsoring company, acts as the general partner developing the technology.

The sponsoring company usually has the base technology but needs funds to future develop and modify it for commercial success.

It is the base technology that the company is offering to the partnership in exchange for money.

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Procedure

An R&D limited partnership generally progresses through three stages:

The funding stage The development stage The exit stage

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The Funding stage

In the funding stage, a contract is established between the sponsoring company and limited partners, and the money is invested for the proposed R&D effort.

All the terms and conditions of ownership, as well as the scope of the research are carefully documented.

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The Development Stage

The sponsoring company performs the actual research, using the funds from the limited partners.

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The Exit Stage

• A final exit arrangement is through a joint venture.

• The sponsoring company and the partners form a joint venture to manufacture and market the products developed from technology.

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Examples

• There are numerous examples of successful R&D limited partnerships.

• Syntex Corporation raised $23.5 million in an R&D limited partnership to develop five medical diagnostic products.

• Trilogy Limited raised $55 million to develop a high performance computer.