By Terry Barrett, CPA, Tax Senior Manager | State and Local Tax Team
Virginia Small Business Investment Grant Fund Program
The Virginia Small Business Investment Authority recently announced that applications are now being accepted for its Small Business Investment Grant Fund program (SBIG). The grants are designed to assist small businesses in the Commonwealth who are seeking to raise capital to support their growth and to encourage investment in such businesses by investors.
The application period began July 15, 2020, and grants will be approved based on the order received and on a first-come first-serve basis. The review of applications will begin August 3, 2020, thus, businesses and investors are encouraged to apply sooner rather than later. Both the small business and the investor each must submit an application and must meet stringent criteria as explained below. It is noteworthy that the grants are paid to investors and not the small business.
Virginia Small Business Eligibility Requirements
A business must meet all of the following criteria to be considered investor-grant eligible:
- Be a corporation, pass-through entity, or other entity (note: sole proprietors are not eligible),
- Have annual gross revenues of no more than 5 million dollars in its most recent fiscal year,
- Have no more than 50 employees who are employed in Virginia,
- Be engaged in business primarily in Virginia or have substantially all of its production in the Commonwealth,
- Have its principal office or facility in the Commonwealth, and
- May not have obtained during its existence more than 5 million dollars in aggregate gross cash proceeds from the issuance of its equity or debt investments, not including commercial loans from financial institutions.
Virginia Investor Eligibility Requirements
Eligible investors must:
- Be an individual subject to Virginia income tax or be a special purpose entity established for the purpose of making investments for such an individual, and
- May not be an individual who engaged in the business of making debt or equity investments in private businesses, or any person who is a partner, shareholder, member, or owner of an entity that engages in such business.
Eligible investors cannot be awarded a grant for an investment in a small business for which the investor has or will be allowed a Virginia qualified equity and subordinated debt investment tax credit. Unlike the qualified equity and subordinated debt investment tax credit which is for similar investments in businesses, the SBIG program does not appear to prohibit investors who hold an investment in the small business or those with a family member or any entity affiliated with the investor from receiving compensation from the small business in exchange for services provided within one year before or after the date of the investment.
Virginia Small Business INvestment Grant Fund Program Details
All grants are subject to fund availability and will be the lesser of 25 percent of the qualified investment or 50,000 dollars. There is a 250,000 dollar lifetime maximum per investor and a 250,000 dollar annual maximum per small business. Violations of the terms of a grant will result in the forfeiture of grant proceeds and the payment of interest.
Eligible investments include:
- A cash investment in a qualified business in the form or equity or subordinated debt and made into a qualified business on or after July 1, 2019, but before January 1, 2022. Equity investments must remain in place for at least two years.
- If subordinated debt, the investment
- May not require repayment of the principal for the first three years after issuance,
- May not be guaranteed by any other person or secured by assets of the business or any person, and
- Must be subordinated to all indebtedness of the qualified business to national or state-chartered banks.
The program is administered by the Virginia Small Business Financing Authority. Additional information regarding the grants, eligibility requirements, and the application process may be found on the Virginia Department of Small Business and Supplier Diversity’s website. Approval notification will begin after August 31, 2020, with the grant awards following in 30 to 60 days.
For more information about the Qualified Equity and Subordinated Debit Credit and other tax benefits available to investors please see our article, Investing in Virginia Businesses? Learn about the Tax Benefits.
Additional Resources for Business Investors
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.