I’m sure I’m not saying anything surprising when I say that private money is hard to come by right now.  Angels have likely seen their net worth plummet from a declining stock market and decreasing real estate market.  VC money remains tough and not the approach for many startups anyways.  And, of course, you’d be bootstrapping if you could, but you can’t, so that is why you are looking, right?  So where should you look at a time like this?  Well, spend a few minutes digging around to see if you could qualify for any of the various government programs.

There are countless programs out there and going through them all would take forever, but I’ve listed a few valuable links to check out at the end of this post.  But think about SBIR, SBA, NSF, or countless other government acronyms that may offer you an opportunity to find money that isn’t available elsewhere.

One caveat — these programs may not be a good fit if the money needed overnight to keep the lights on or pay employees on Friday.  These applications can be lengthy, require lots of time and phone calls, and be worse than preparing your college applications.  But, remember this — the government continues to aid small businesses and if you are already battening down the hatches riding out the economic storm, now might be the time for some applications and waiting anyways.

A bit of background on a few government programs.

Federal and state governments offer grant, loan and technical assistance programs designed to promote emerging businesses. Competition for these forms of public sector funding is fierce, and the application process is oftentimes quite arduous. Additionally, the funds usually come with burdensome restrictions on what you can do with the money. Nevertheless, some startups effectively use government funds to advance their business development, so these funding sources shouldn’t be completely dismissed.

One quick point to make: the SBA does not make grants to small businesses directly — they are the arm of the federal government that aids small businesses.  SBA grants go to others who actually help deploy that money.  The SBA does provide backing for loans to small businesses — but those are sometimes difficult for some technology businesses.

Many federal agencies participate in the government’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The SBIR and STTR are funding programs designed to stimulate technological innovation and fulfill the research needs of the federal government. Businesses are required to meet several criteria to be eligible for grants under either program, including U.S. ownership, for-profit status, and restrictions on number of employees. The SBIR and STTR programs differ in two major ways. First, under the SBIR program, the principal investigator listed on the SBIR application must be employed by the small business at the time of the grant and for the duration of the project. Under the STTR program, there is no such employment requirement. Second, unlike the SBIR, the STTR program requires the small business to be engaged in a collaborative relationship with a non-profit research institution located in the U.S.

• For SBA loan guarantee programs (the SBA will not actually give you the loan, but will guarantee a loan made through a traditional commercial lender), there is not a maximum loan amount and companies are eligible for loan terms that can be up to 25 years. SBA loan guarantee applications tend to approve applicants where the founders have good credit scores, and strong business plan detailing the use of the proceeds from the loan, and evidence that the founder or founders have made personal financial investments.   In Washington state, check out the SBA Loan Fact Sheet or view the list of participating lenders.

• The SBA 504 loan program (sometimes called a “Development Loan”) is designed to assist small businesses with financing of fixed assets, including the purchase of buildings, land, and certain types of equipment. Private institutions will provide the financing for the assets through Certified Development Companies (also known as a CDC). Loans made under the 504 program are generally made at a fixed-rate, long-term basis. The way the Development Loan works is that the private lender institution will lend the company 50% of the total project, a CDC will lend 40% (guaranteed by the SBA), and the company will be responsible for the remaining 10% of the total project cost. The uses are somewhat limited – inventory, debt service, short-lived equipment and machinery aren’t eligible. However, for various projects including building, construction, and facility renovation or retrofitting, these programs will be an option.

• Companies in the importation and exportation business may be eligible for Import-Export Bank Programs, supported by the SBA. Loans for working capital of up to $1.1 million ($1.25 million if combined with an international trade loan) can be guaranteed by the SBA. This program is typically only available for U.S. companies that have been in business for one full year, operate at a profit, and do not exclusively rely on the loan to support the business operations.

Some federal agencies also run venture funding groups. Rather than awarding grants, these groups make investments in emerging businesses. For example, In-Q-Tel is a venture fund run by the CIA that invests in high-tech startups, typically that look to develop technology related to the intelligence community. These venture funds normally produce good returns, and approaching them may be easier than their private sector counterparts.

The US Government also has a preference program for small businesses, so you may be eligible for certain government contracts that are put out to bid. In 2006, small firms won $77 billion in government contracts, or 22.8 percent, of a total of $340 billion in federal government contracts eligible for small business competition.  Check out the SBA on Government Contracting that includes a guide to winning government contracts.

Many U.S. states also offer financial assistance and other support to new startups. These funding programs are usually run through specific agencies or departments based on the relevant subject matter. You should be particularly wary of state funding initiatives to encourage startups in areas where few succeed. Though free money is enticing, it certainly shouldn’t be considered free if it hamstrings your business by forcing you into an unsupportive location.

Here in Washington state, check out the Community, Trade and Economic Development organization that provides a guided search for services, grants and loans.  Also check out the Community and Financial Assistance Unit (CFA).  The Washington Small Business Development Center will provide some free services such as market data analysis, competitive analysis or help identify some sources of capital.  While not direct funding sources, oftentimes the SBDC will be able to guide you through the maze our there.

Where to start looking?

– Start at the SBA website and see what you can learn.

– Visit a Washington Small Business Development Center.

– Identify a federal agency grant program (for example, (1) creating software for defense-related applications, check out the DoD Small Business Programs, or (2) building a life sciences or medical devices company, check out the NIH SBIR programs).

– Visit SBIR Gateway which has a list of resources for SBIR awards.  — Building a company based on technology from a University or high-tech science, visit the National Science Foundation programs

Obviously, not every company is a perfect fit for government funding programs. But you won’t know until you try.  Visit the SBA local offices, meet with a SCORE mentor or just call the SBA helpline at 206-553-7310.  If you have licensed technology from a university, talk to the tech transfer office or professors who are often experts at the grant writing process.  You may have to dig to find someone to help guide you through the process (talk with a favorite college professor who may be a resource), but it may be a good program to consider.

Spend some time looking around (now is better than ever) and checking out the resources available online.  You may find you qualify for a U.S. Government-backed microloan or may find that your product or team would be eligible for the Government Contracting programs.  See what resources are available from a quick google search and you may wind up surprising yourself.