A move within Congress to change the eligibility requirements of a type of Small Business Administration loan could make millions of dollars available to biotech start-ups in the Valley. The Senate Small Business and Entrepreneurship Committee advanced a proposal that allows small companies that are majority-owned by venture capitalists to receive money from the Small Business Innovation Research program, a potentially-lucrative funding avenue that awarded $415.7 million to small California businesses in 2004. Under the current rules, the grants are available only to small businesses that are at least 51 percent owned by individuals. The new regulations would allow companies funded mainly by private investors access to the money. The change could mean a boon for emerging biotech and medical device companies. The start-ups rarely make money initially in the research and development phase, so most are funded by venture capitalists that provide seed money. Victor Hwang, president of Larta Institute, a Los Angeles firm that helps emerging businesses find SBIR funds to enter the marketplace, said the rule change, if passed by the full Congress, would certainly help more companies enter the pipeline. “They’re trying to figure out a way to make the rules make sense in the start-up world,” he said. The SBIR program was created by Congress in 1982 to encourage small businesses to develop technology. To reach the goal, the government offered qualified small businesses grants and other incentives to offset the financial risks usually associated with research and development. Funds would come from 11 federal sources including the Environmental Protection Agency, NASA and the departments of energy, commerce, defense and homeland security. Originally, there were no limits on size of companies. But through a series of legal and bureaucratic procedures, the rules were changed in 2003 to limit the funds to businesses majority-owned by individuals, not venture capitalists or other private investors. Edsel M. Brown, Jr., the assistant administrator for the SBA’s Office of Technology in Washington, D.C., said the alteration vastly altered the number of companies that could apply. “A small business has to be at least 51 percent owned by individuals,” he said. “Venture capital can own up to 49 percent currently.” That meant that in order to participate in the SBIR program, companies must be American-owned, independently-operated, for-profit and have fewer than 500 employees. It also meant many budding high-tech businesses, such as biotechs, were out of the running, Hwang said. “If you were a small company, you were actually penalized for getting venture capital dollars,” he said. The proposed change essentially reverses the 2003 decision, Brown said. It is the product of heated debate among the SBA, Congress and small business advocacy groups, he said. “The venture capital industry has been lobbying to get the regulation changed so they can have greater participation,” he said. “It was a real hot issue for us.” The adjustment, however, is far from a shoo-in and will likely go to conference committee, Brown said. “When the House comes out with theirs and they conference it, we don’t know what will come out,” he said. “But if the rules are changed, it’s probably going to change the portfolio of those in the program.”