Small Business Financing and Investment Act

[Kidlicious]

How much do you guys know about this? This is suppose to help small businesses get funding, but I heard on C-SPAN that the loans match venture capital funds.

This seems like another stupid supply-side policy that won't do ****. It won't help small business at all.

[-Jrabbit]

Will they buy me a new computer and an upgraded phone plan? No. Grants are only for small business that will demonstrably provide significant new jobs. I hadn't heard about the "match venture capital" thing, so can't comment on that aspect. But there is language about "public/private partnership" and perhaps that's what it means.

But the new act (along with last April's ARRA) will make it easier to get SBA-backed loans.

At least, that's my (very limited) understanding.

[Kidlicious]

But the new act (along with last April's ARRA) will make it easier to get SBA-backed loans.

I agree with that, but if venture capitalists are going to invest in the project anyway, I don't see how backing more loans is going to create more jobs than it otherwise would.

[-Jrabbit]

It lowers the tipping point for a positive response from VCs, which presumably means more projects get greenlighted overall.

[Kidlicious]

It lowers the tipping point for a positive response from VCs, which presumably means more projects get greenlighted overall.

Do you really think so? It simply means that VCs don't have to invest as much, or do you think it will increase that chance of success?

[Solomwi]

Do you really think so? It simply means that VCs don't have to invest as much, or do you think it will increase that chance of success?

How could it not? Either expected benefit increases or expected cost decreases when an investment triggers additional funding or access to capital. Either way, the balance shifts in favor of making the investment. This may not be necessary, but as a precaution, a simplified example:

I have some money I'm considering investing in a small startup, which needs $1,000 to get going. The SBA will match my investment with a grant to the startup. If I go ahead and invest the full $1,000 and the startup takes the matching loan, it has twice the capital it would have had otherwise, and thus a higher chance of success. The expected benefit has gone up. If, on the other hand, I invest $500 and the SBA matches with a $500 grant, the startup still has its $1,000 of needed capital, but getting in has only cost me half as much. The expected cost has gone down. Either way, I'm more likely to invest than if my $1,000 investment is the only capital the startup receives.

[Kidlicious]

How could it not? Either expected benefit increases or expected cost decreases when an investment triggers additional funding or access to capital. Either way, the balance shifts in favor of making the investment. This may not be necessary, but as a precaution, a simplified example:

I have some money I'm considering investing in a small startup, which needs $1,000 to get going. The SBA will match my investment with a grant to the startup. If I go ahead and invest the full $1,000 and the startup takes the matching loan, it has twice the capital it would have had otherwise, and thus a higher chance of success.

That would only be true if raising capital were the problem in the first place. There's no shortage of potential capital available. The only real problem is that the chance of success is low because of the very poor economic situation.

The expected benefit has gone up. If, on the other hand, I invest $500 and the SBA matches with a $500 grant, the startup still has its $1,000 of needed capital, but getting in has only cost me half as much. The expected cost has gone down. Either way, I'm more likely to invest than if my $1,000 investment is the only capital the startup receives.

I don't think venture capitalists consider the size of the investment as much as the potential return. They have a lot of money.