SBA and EPA team up on study

Bridging the Valley of Death: Financing Technology for a Sustainable Future concludes the public sector has an obligation not only to protect the public good through environmental regulations, but also create a business and regulatory environment more conducive for small businesses to bring their innovative environmental remediation technologies to market. The U.S. Small Business Administration and the U.S. Environmental Protection Agency studied the environmental technology industry from the perspectives of technology developers, users, and lenders. The study team supports the National Environmental Technology Strategy with its view that technology is the bridge to a future where both the environment and the economy thrive.

The study team identified barriers faced by small business developers and users of environmental technologies. As a small company moves its technology along a six-stage development path, capital needs rise, while capital availability falls behind. Initial sources of income dry up before the entrepreneur has a final product or even a prototype, plunging the entrepreneur into the "Valley of Death" from which many never emerge. Testing and evaluating a technology is prohibitive for many entrepreneurs. (Michael Dunn, president of Selentec, discusses the costs of technology demonstrations beginning on related article in this issue.)

Only five percent of U.S. venture capital firms actively invest in the environmental industry. Lenders are wary due to the perceived lack of business and management skills of entrepreneurs. Lenders know the permitting process is long, expensive, and uncertain due to different state and federal standards. Potential lenders and investors also lack information on national and international markets for environmental technologies.

In seeking to remedy environmental problems, users of environmental technologies also encounter barriers. Financing for environmental compliance and pollution prevention projects is available through commercial lenders, various state pollution control and remediation loans, and local environmental organizations. Commercial loans are problematic, because lenders realize they could be liable for the cost of remediating properties held as collateral on uncollectable loans.

To assist developers, the study team recommends policy changes using existing programs to focus on:

• Streamlining the permitting process with a national technology certification process.
• Limiting the liability of SBA under federal and state laws, which would greatly enhance SBA's ability to provide credit to needy small businesses.
• Creating an Envirobank of the United States, licensed and regulated by the SBA but privately owned and managed, to provide a wide variety of financing and management assistance to small environmental technology businesses. The incentive for Envirobank would be to share in the success of the small business as it grows and prospers.
• Increasing the level of federal agency funding going into the Small Business Innovative Research (SBIR) Program.
• Providing technical assistance to lenders on various aspects of environmental technology via existing government-financed technical assistance networks, training courses, a national computer network, or on a case-by-case basis.
• Facilitating strategic partnerships between small technology-based firms and medium to large businesses, potential users, public-sector groups, equipment manufacturers, large environmental vendors, academia, or R&D institutions.

To assist users, the study team recommends policy changes to focus on:

• Creating a fund for small business-dominated polluting industries, such as dry cleaners, tool and die shops, metal fabricators and finishers, gas stations, and auto repair shops. By paying a small percentage of their revenues into the fund, the firms could receive financial assistance for their purchases of pollution control or prevention technology.
• Providing technical assistance to lenders.
• Providing education of small businesses through SBA's Small Business Development Center program on how to buy, adopt, and use environmental technologies.

To order a copy of this document, call the Small Business Administration at (202) 205-6485. Both paper copies and computer disks are available. The document can also be downloaded from the Internet at http://iridium.nttc.edu/env/finance/bridging.txt.