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How Does Government Assist Business Industries?

19 mins read
Government Assist Business

The U.S. government provides many benefits and assistance for both small and large companies. These can range from grants and contracts to intellectual property protection. Federal agencies distribute them, most notably the Small Business Administration, which is mainly responsible for small business owners and startups.

Businesses must take advantage of every opportunity as these can significantly impact their companies’ continued growth. This post aims to provide information to help you learn how the government assists businesses.

What are the different forms of federal government assistance?

How can the government help businesses?

Loans

Government-backed loans are an excellent way for helping small businesses get started and grow. The Small Business Administration (SBA) guarantees these loans.

Microloan: The SBA microloan program issues loans from $13,000 to $50,000 to support small businesses and some nonprofit organizations (e.g., childcare centers) or intermediary lenders with expertise in technical assistance and management. Intermediary lenders administer the program and select eligible borrowers.

To apply for a microloan, you need to contact an SBA-approved intermediary in your vicinity to inquire about their lending and credit requirements. They also need collateral and the business owner’s guarantee. This microloan program aims to reach those lower-income communities and businesses often turned down by traditional banks. In the fiscal year 2021, microloan intermediaries provided over 4500 loans totaling $46.6 million.

SBA microloans cannot be used to purchase real estate properties and pay existing debts. They can be used for small business expansion and other purposes as long as the projects don’t exceed $50,000, like repairs, rebuilds, and enhancements. Other examples are:

  • Furniture
  • Working capital
  • Supplies and inventory
  • Machinery and equipment
  • Fixtures

Economic injury disaster loans: The SBA’s economic injury disaster loans are the only SBA assistance not exclusive to small businesses. It’s mainly for repairing and rebuilding nonfarm, private sector disaster losses.

7(a) small business loans: These loans are the SBA’s most common loan type. It got its name after the Small Business Act’s section 7(a), which authorizes the SBA to provide loans to small businesses. The program assists for-profit companies that couldn’t get other financial assistance from other sources. The maximum loan amount is $5 million. You can visit the 7(a) Loan Application Checklist page to start the application process. The eligibility factors that money lenders will assess are the following:

  • Business credit history
  • Sources of income
  • Business location

Military reservist economic injury disaster loan: The military reservist financial disaster loan issues funds for eligible businesses to meet the necessary operating expenses they could have afforded if they didn’t lose an essential employee called up to active duty as a military reservist. The maximum loan amount is $2 million with an interest rate of 4% and a minimum collateral rate of $50,000.

Government grants

The federal government awards grants worth hundreds of billions of dollars annually to state and local governments. These grants help finance services, including public safety, health care, education, infrastructure, and more. Here are the different types of grants:

Formula grant: Formula grants are noncompetitive grants. These are awarded to recipients based on a predetermined “formula” that varies for every program. Regulations and legislation set the formula for this funding, and you can visit federal agency websites to learn more about them. Examples of formula grants are the federal government’s contributions to state and local governments, such as education and Medicaid health insurance.

Competitive grant: Competitive grants are awarded based on competition. It includes a panel of reviewers and a proposal selection with one reviewer. This type of financing can be determined by application merits and not predetermined like formula grants. Funding for arts and humanities and scientific research are examples of competitive grants. You will need more comprehensive research to meet the application requirements and grant criteria.

Renewal grant: Renewal grants allow recipients to extend or renew their existing funding program. This applies to one or more extra budget periods that would have expired. However, it still depends on the grant program, and some may not be eligible for renewals.

Pass-through grant: As the name implies, federal agencies award pass-through grants to institutions and state agencies. In other words, government agencies transfer funds directly to local government units (LGUs), state agencies, and other eligible organizations per the eligibility terms of the awards. State agencies can distribute these funds as noncompetitive or competitive based on the primary award’s legislation and terms. So, this gives the state government flexibility and autonomy in allocating federal grant funds.

Examples of business grants

Small business grants for minorities: Several businesses owned by minority groups face unique challenges. For instance, they may likely lack access to capital and other resources needed to flourish. However, that doesn’t mean they should abandon their business goals. There are plenty of government grant resources available to help them overcome these obstacles:

Small business grants for veterans: Veteran small business owners can apply for grants through the Department of Veterans Affairs. The website has 80 different grant programs that can be used to fund various aspects of their business operations, including health care spending and educational assistance.

Small business grants for women-owned businesses: According to a Forbes report, women-founded companies are on the rise, with a 143% increase in value in the past two years. Women-owned businesses in the U.S. are qualified for grants that provide funding for their businesses. In addition, there are SBA-sponsored centers for women, namely:

Government programs

Small business tax credit programs: The American Rescue Plan of 2021 is a federal program that extends critical tax benefits, particularly the Paid Leave Credit and Employee Retention Credit, to small businesses. It is a $1.9 trillion coronavirus rescue package created to facilitate the United States’ recovery from the COVID-19 pandemic’s devastating economic and health effects.

Paycheck protection program: The Paycheck Protection Program is an SBA-backed program aiming to help businesses retain employees during the COVID-19 crisis. It was created by the CARES Act, supported by the Treasury Department, and implemented by the SBA. Also, it prioritizes millions of small business American citizens by providing over $650 billion for job retention and other costs by issuing funds to pay up to 8 weeks’ worth of salary and benefits.

Emergency capital investment programs: The Consolidated Appropriations Act of 2021 established the spending bill for low and moderate-income-earning financial institutions to support consumers by providing grants and loans to small and minority-owned businesses severely impacted by the COVID-19 pandemic. It was enacted into law in December 2020, and the Treasury Department officially launched it in March 2021. Check the program’s requirements, eligibility, funding details, and interest rates here.

Government contract

The primary types of contracts differ in the bidding process and work performance. So, it’s important to understand the difference in challenges and opportunities of every contract. Federal agencies decide on the most suitable contract type depending on the government’s needs.

Fixed-price contracts: Fixed-price contracts are common for all federal agencies and state and local procurements. So, opportunities for government contractors here are limitless. Here, contractors agree to deliver their services and products at a fixed price without charging more than the agreed maximum. The best examples are purchasing inventories, vehicle repair services, and office equipment. They are not suitable for research studies.

Time and materials contract: This contract is commonly used when the exact time frame, project terms, and total project cost are undetermined. It can also reimburse the contractors, expenses on the material on top of the hourly wage and service fees provided. It’s commonly used in construction and product development. This is the opposite of a fixed-price contract. These agencies used the time and materials contract:

  • Defense Information Systems Agency
  • Federal Transit Administration
  • Department of Defense

Cost reimbursement contracts: Costs are what contractors must pay to continue working on their projects and deliver their services and products, including materials, labor, tools, and other expenses. This is the opposite of a fixed price contract where contractors are paid a fixed amount regardless of the total expenses. Getting cost reimbursement requires an agreement between the government and contractor to avoid misunderstandings. However, it is not unlimited and has a ceiling that contractors may not exceed based on the arrangements with the contracting officer

Indefinite delivery and quantity contracts (ID/IQ): These contracts are a project delivery method that allows the government to procure an undetermined service quantity for a fixed period. For example, the GSA uses this contract when it can’t determine the minimum number of quantities of services and supplies the government will need during the contract period.

How to get local and state government contracts?

To become a local or state government contractor, you must research contracting opportunities in your state. You can also contact people in charge at each government level.

How to get federal contracts?

The broad categories of federal contractors are prime and subgovernment contractors. The former does the bidding and winning of contracts directly from federal agencies. The latter teams up with prime contractors to provide specific services to attain their goals. Small businesses are also eligible to become contractors after registering their business as a contractor and meeting SBA’s small business size standards.

How does the government help businesses grow?

How does the government help businesses grow?

Here are the ways different government levels can help your business:

Federal government

A few federal departments guide small business owners with their areas of expertise.

  • The Patent and Trademark office focuses on protecting intellectual property to advise how to keep your IP secure.
  • These departments can also help with federal law concerning research and development grants, export regulation, tax incentive programs, and more.
  • The Department of Education offers grants to students to help them earn their degrees and help create a workforce that will be needed in the future when more jobs are created as technology advances. More industries need more skilled business workers to be a part of their daily operations.

State government

The state government has helped businesses in all states by providing various incentives and benefits to them. Here’s what some state governments are doing:

New York: New York City started its new economic recovery loan program for small businesses, landlords, and nonprofits in the state. This is to help them recover from the pandemic outbreak. Also, the program prioritizes small establishments with less than 20 full-time employees.

Wisconsin: The state launched its Small Business 20/20 Program to award grants worth up to $20,000 to help the selected businesses facing cash flow challenges caused by the pandemic. Community development financial institutions will distribute the funding.

Maryland: The state’s Department of Commerce launched an Emergency Relief Grant worth $50 million for businesses with less than 50 employees. They also provided another $75 million emergency relief loan fund for companies with 50 or fewer employees.

Local government

The local government can assist businesses in many ways:

  • First, it can provide businesses with permits and licenses necessary to operate a business. These include city business licenses, building and fire permits, and zoning laws.
  • Second, local governments can provide information about tax credits and incentives related to energy technologies and efficiency, job creation, urban redevelopment, and more.
  • Third, the local government has access to grants that will help fund projects that benefit their constituents and those who live around the area. For example, if there’s a need for upgrades in infrastructure, including roads, sewerage, community facilities, and roads, the local government can provide funding.

How does the government impact businesses?

The government can impact businesses in many ways. The most obvious ones are government regulations and interest rates, but there are many others.

Related: The Government Shutdown and the Impact on Your Business

Government regulation

Federal agencies support businesses through their offices by collaborating with the owners and helping them comply with business regulations applicable to them. Large firms usually have the necessary resources to keep up with the continuous changes. So, the government focuses on small businesses instead.

Subsidy

Subsidies come from government taxes from the general public. The government gives it to a selected industry to support and make it profitable, like energy, transportation, and agriculture, which are the biggest beneficiaries. This is to ensure these industries keep their prices low and affordable for public consumption and encourage businesses to continue with their production.

Interest rate

The Federal Open Market Committee (FOMC) decides on the interest rates for banks. Higher interest rates lead to decreased consumer spending, while lower interest rates can increase investments as businesses expand production. However, lower rates can cause liquidity traps and asset bubbles, threatening effectiveness.

Bailout

AIG bailout is an example of how the government can bail out businesses from failing financially. In this case, AIG was a big insurance company with many employees and was tied to many financial institutions that relied on it. When the company started to fail, it needed help from the Federal Reserve to keep its doors open, save the global economy, and prevent it from shutting down entirely.

How does government assist business industries?

How does government help different business industries?

The economy’s industry sector offers significant value with its services and products. Here are examples of big industries and how government works to help them:

Agriculture

USDA Farm Service Agency is responsible for helping farmers expand their operations through grants and programs to purchase land or equipment. Some cooperatives help farmers store their crop production instead of selling them immediately. They can then sell products throughout the year at higher prices. In addition, the National Organic Program regulates organic food productions and related businesses that use organic fertilizers and pesticides.

Pharmaceutical

The pharmaceutical industry has received lots of grants from the federal government. The biggest of which is the COVID-19 vaccines. In 2020, the Phlow Corporation in Richmond, Virginia, received an $812 million award to manufacture vaccines and therapies at risk of shortage.

Aerospace

This industry has various activities, including space exploration, commercial aviation, national security, and more, which are vital to economic and national health. However, it’s facing increasing demand and a national air traffic management system. So, Congress launched the Commission on the Future of the United States Aerospace Industry in 2001 to prepare for a robust space industry in the 21st century.

 

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