Category: Business 21st January 2019
Small businesses are private owned corporations, which are ascribed to little or no governmental support. The nature of such businesses is also determined by the number of employees. For instance, the United States categorizes all enterprises that have fewer than five hundred employees as small businesses. The ownership of these enterprises can also be either sole proprietorship or partnership. According Small Business Administration, a small business can also be defined on the basis of annual average receipts. According to the Code of Federal Regulation (CFR), small businesses are determined by the number of employees and offer a variety of services, including manufacturing, agricultural production, communications, retail, wholesale, transportation and warehousing (Mogee, 2003).
The significance of these businesses in the American society is determined not only based on their number but also their contribution to the American economy. For instance, the Small Business Administration report reveals that these businesses comprise 5.8 million out of 6 million companies in America. They also contribute 68% of new annual employment opportunities. As a result, the government has considered small businesses as highly significant institutions. Through the Federal Acquisition Regulation (FAR), the government has laid down strategies that are geared towards promoting establishment, growth and expansion of these businesses. These include the need to create a network of resources that provide contract opportunities that would level the playing field for small businesses in the process of procuring goods and services (Robbins, Pantuosco, Parker, & Fuller, 2000).
In the United States, the federal procurement process is guided by certain social economic policies that are strategically meant to promote the interest of small businesses. In this policy, the government requires that the purchase of supplies and services should be grounded on competitive and efficient basis. However, it has to be done in full consideration of the law and executive orders (Robbins et al., 2000). On the grounds of stiff competition, the contract opportunities should consider and encourage active participation of small businesses that are perceived as disadvantaged enterprises in the market. In this provision, the small and disadvantaged businesses are defined as those that are owned by women and other socially and economically disadvantaged individuals. Besides being owned and independently controlled by the socially and economically disadvantaged, such businesses should also be less dominant actors in their field of operation and meet other legal thresholds for the definition of a small business (Robbins et al., 2000).
Contract financing, which is alternatively referred to as a purchase order, is a business deal that allows a bank or other financial institutions to finance contractors for their proved contracts with clients. Once the collateral of the contract is proven, contractors can get funding from a bank in order to pay their laborers, suppliers and other intermediary goods and services. As soon as the contract payment is executed, the contractor pays the financial institution its dues. In other cases, the financial institution is paid directly by the client on behalf of the contractor (Karlsson & Karlsson, 2002).
Contract financing has a number of impacts on small businesses. For instance, it enables small companies to receive proceedings from the loans that are used as the working capital in business. Through this funding strategy, small businesses can easily pay for suppliers, labor and raw materials without financial constrains. They can also use these funding to invest in other projects, hence increase their sales (Karlsson & Karlsson, 2002). As a result, small companies can easily utilize sales growth opportunities that are larger than their internal financial capacity. This is based on the fact that contract financing is not based on the internal balance sheet of the company, but on the economic and financial viability of the underlying transaction. This also helps small businesses to curb delays that may be experienced as a result of the shortage of capital. This business financial strategy has, therefore, enabled small businesses to strengthen their cash flow, make additional profits, and respond to immediate sales needs and access working capital without additional credit risks (Robbins et al., 2000).
Loan guarantee is one of the ways of executing contract financing. As used in business and finance, loan guarantee is a case where one party commits to assume the debt obligation of a borrower if the borrower defaults. The guarantees can be either limited or unlimited. Limited guarantee makes the guarantor only liable for a portion of the debt, while unlimited guarantee makes the guarantor liable for the whole debt (Karlsson & Karlsson, 2002).
In the United States, loan guarantee program was included as a part of the provisions of the Small Business Act of 1957. In this legislation, the intention of the federal government was to encourage lenders to provide loans to small businesses that cannot otherwise obtain such loans on reasonable financial terms and conditions. This was based on the observation that most of the small businesses were less credit worthy with respect to the tight lending standard, yet they needed loans to expand their business operations (Robbins et al., 2000).
Since its inception, loan guarantee has had a number of impacts on small businesses. To begin with, it has helped in maintaining discipline in the way small businesses use the borrowed funds. This is because financial institutions have the right to get a justification of what the loan is meant for. For instance, the rule prohibits the use of such loan to service existing debts, facilitating the change of business ownership or payment of other non sound business costs. Instead, businesses are encouraged to spend in meaningful investments such as acquiring land, purchasing of buildings, renovating business premises and installing fixed assets (Mogee, 2003).
The policy has also enhanced better loan repayment terms. Although it is indicated that the loans have to be paid within the shortest time possible, the duration are always set depending upon the borrower’s ability to repay and with the possibility of extensions. The interest rates are also fairer as they must fit within the regulations given by the Small Business Administration provisions. In general terms, guarantee loans have increased small businesses’ participation in investment through the access to fair and regulated loan facilities. They have instilled a financial discipline in business and have improved eligibility standards of a borrower (Mogee, 2003).
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The concept of private financing refers to a method of providing funds for capital investors, where private firms can be contracted to initiate, complete and manage public projects. In such a case, the private company is entrusted by the government to handle the upfront costs of what qualifies to be a public project. Subsequently, the project is leased to the government that makes an annual payment to the private enterprise. In most cases, these contracts are given to large construction firms, and the contracts can last for thirty years or longer. Such business deal can also be referred to as public-private partnerships (Robbins et al., 2000).
Although most of the small businesses may not have the financial capacity to execute private financing projects, the few that can attain this capacity experience a number of impacts. For instance, contracting the government to run such projects helps small businesses to save on administrative costs. Furthermore, they are also exempted from costs that relate to regular licensing fees that are payable to regulatory bodies and maintenance costs. Private financing is also a strategy of attracting wider scope of investors and shareholders, in particular businesses interested in controlling such projects that are of the public interest (Karlsson & Karlsson, 2002).
Despite the fact that small businesses have continued to play a leading role in job creation and technological advancement in the US, preserving their intellectual property, which is their considerable wealth and resource, has emerged as one of the greatest challenges. As a result, the Federal Government through the FAR, subpart 27.3 stipulated the policy that protects the intellectual rights of all individuals and institutions that engage in constructive technological and business inventions (White, 2003).
In this policy, the government committed to use the patent system to promote inventions through the federally supported research developments. In this process, various participants in the industry are highly encouraged to involve in inventions through a free and fair competition. The policy also stipulated that the federal government only has the full rights to own and create public availability of inventions that are fully financed and supported by the federal government (White, 2003). In general, the government was keen to curb the non use or unreasonable use of invention whether by large or small enterprises. Furthermore, the cost of administering patent policies was also to be minimized so as to make patent rights affordable to all inventors, including small businesses.
In matters regarding the title of an invention by small businesses, the inventor exercises full rights to name the invention. However, the federal government only has the right to obtain the title to such invention if the contractor does not disclose the invention within a certain period of time as specified by the law. The federal government also exercises such a right if the contractor fails to elect to retain rights of the invention within a certain period of time. This may also be permitted if the inventor fails to apply for the patent protection or decides not to continue with the prosecution of patent, no longer desires to retain the title, fails to pay maintenance fees, fails to defend a reexamination or opposition proceeding on the patent (White, 2003).
On matters regarding licensing of an invention, the policy states that the government does not have the right to license third parties of an invention by a contractor. However, this can only be allowed if the head of the agency approves this adoption through a written and signed justification. The policy further indicates that the authority to write and sign such a letter remains only with the head and cannot be delegated. In addition to this, such permission can only be approved if the invention is perceived as necessary for the practice of the subject and if there is a need to achieve further practical applications of the invention. It is, thus, clear that small businesses hold the rights to give the title to, maintain and use their inventions. However, the state has certain rights to intervene only if small businesses fail to meet their constitutional requirements.
Small businesses have been acknowledged as very active development actors in the US. Therefore, the government has made several initiatives to encourage such enterprises. This has been realized through several strategies such as contract financing, loan guarantees, protection of intellectual property and legal policies regarding the title and licensing of their technology.