Richmond, Va. -- Getting the necessary capital to start a new business or to infuse into an existing one can be difficult.
Banking rules have changed in the past couple of years, making it more difficult for small-business owners to get loans.
And credit remains tight, although banks are lending more these days.
"Capital is always the challenge," said Sen. Ryan T. McDougle, R-Hanover.
But beginning July 1, investors who want to put money into small businesses in Virginia will have an added incentive.
Gov. Bob McDonnell signed a bill — sponsored by McDougle and Del. Donald W. Merricks, R-Pittsylvania — that creates a small-business investment grant fund to give Virginia's small companies better access to capital.
Under the program, those loaning money to a small business would be eligible to get a grant equal to 10 percent of a qualified investment.
"I consistently hear from small-business owners that access to capital is one of the greatest barriers they face as they look to expand," McDougle said. "This legislation will encourage investment in these entrepreneurs."
The state will put $1.5 million in the fiscal year that starts July 1 into the grant fund program, and another $1.5 million in the following fiscal year, McDougle said.
The hope is that the refund program will encourage private capital investment in small businesses that, in turn, should spur economic development and job creation, McDonnell said during the bill signing ceremony, which took place at the Greater Richmond Chamber's Henrico Business Council meeting Wednesday.
The Virginia Department of Business Assistance is overseeing the fund, and investors will need to apply to the agency for grants.
The department is still developing certain policies and procedures such as the maximum amount for a grant.
The legislation requires investors to maintain the investment in a business for at least two years, unless the business liquidates or is acquired. If an investor fails to maintain their stake for at least two years, they must forfeit the grant and pay interest.
Investors also will not be eligible for grants for investments in businesses from which they or family members receive compensation as employees, directors, officers or contractors,
Investors can seek grants for qualified investments they make after July 1.
Scot McRoberts, executive director of the Virginia Council of CEOs, an organization of small to medium-size businesses, said he applauded the effort to help small businesses grow.
"Investors are cautious when looking at small business deals, and this grant fund is certainly an encouragement to those investors," he said.
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