There are two types of government funding. The first are loans guaranteed by the Small Business Administration (SBA), and the second are loans and grants provided by states.

How It Works: There are two types of funding programs, one is federal and the other is state. The federal funding program is through the SBA. The SBA, working through commercial banks, guarantees loans that banks may not want to make on their own. The company must have collateral and must fill out various forms.

There are states such as Pennsylvania and Ohio that offer loan and grant programs. Funding requests over $25,000 usually requires collateral or some amount of matching capital.

Preparation Expectations: Both state and federal programs want to see the same type of business plans that venture capitalists and investor angels require.

Advantages: Management doesn't have to give up equity.

Disadvantages: Management can lose its collateral with a SBA loan. Some state programs require capital, but by and large they don't.

How To Keep Them Happy: Keep in touch with the company loan officer or granting organization by telephone or invite them to the company offices. They will require some type of monthly or quarterly report, so make sure they receive it. Let them know if things aren't going well, so they can try to help and won't be shocked if the company can't pay back the loan.