What Is a Small-Business Grant?
A grant is money that's given to a business for a specific purpose. Whereas a lender wants you to demonstrate your ability to repay the loan, an agency that offers grants wants to see that your business aligns with its mission or a specific initiative.
Businesses can qualify for grants for many reasons, whether it's because the business supports a specific government initiative or its ownership meets certain qualifications (women and minorities, for example). There are a variety of government, nonprofit, and private entities that fund grants for a wide array of projects and programs.
The federal government does not typically award grants to start or expand a small business. Its grant programs are usually aimed at nonprofits or other government agencies that otherwise struggle to generate funding.
How Small-Business Grants Work
Government agencies, nonprofits, and private businesses can choose to set aside grant money for any reason they choose. One might set up a grant to encourage minority entrepreneurship in a community. Another might want to fund research and development in a specific industry. Others might want to reward innovation. Whatever the cause, the agency or business will start a grant by setting aside funds and setting up qualifications and an application process.
If you wonder whether your business might qualify for a grant, you can search online databases such as Candid or the official U.S. government grants site to find a variety of government and nonprofit foundations offering grants. When you find some that seem like a good fit, you'll need to apply and provide any documentation requested in the application. This process is called "grant writing."
If you qualify for a grant, the agency will notify you about your funding along with the details about the process for reporting and accountability. Once you've agreed to the terms, you will receive the funding.
Although you don't have to pay back a grant, the agency or company awarding the money will require you to regularly report on progress toward program goals.
Types of Business Grants
Grants are most often available for specific types of businesses or activities that the government wants to encourage. There are over 20 categories on the Grants.gov website alone, ranging from agriculture to transportation and funded by various federal agencies. For example, the Department of Agriculture provides grants for businesses that provide broadband into rural areas.
States provide grants to specific businesses that further their economic plans. These include child care centers, innovative technology, or alternative energy. Although they are awarded by state and local governments, the funding is from the national level.
If your business has a social welfare goal, you'll have better luck finding a local grant. The Community Development Block Grant Program gives cities federal funds that they can allocate for their social improvement goals. They're more likely to fund nonprofits, but if your business meets their goals, it's worth a try. The program supports affordable housing, services to low-income families, and job creation. Contact your local municipal government to find out more.
Most grants are only offered to small businesses that further a government goal. If yours doesn't, then chances are you'll be offered small-business loans instead of grants.
How to Get a Business Grant
Although grant money is "free," you can spend a lot of time looking for and fulfilling grant requirements—time that could be invested in growing your business. Worse, you might get scammed and actually lose money. Before you do that, take these three steps to see if getting a grant is right for you.
Step 1: Put Together a Business Plan
Before applying for any money, you've got to be able to describe your business and why it will be successful. Be very clear on four things:
- What is your product or service? Is it something the market truly needs, or just something that you're good at and enjoy?
- Who is your target market? if you answer "everyone," then you haven't thought it through. You've got to be more specific.
- Who is your competition? How is your target market currently getting its needs met?
- Most important: What are you providing that no one else is?
Answering these questions will help you to create a competitive advantage.
Step 2: Become Familiar With Grant Writing
If you want to apply for small-business grants, first become familiar with the process. It's usually quite detailed and time-consuming, and there is no guarantee if you will be selected. Understanding what's involved in the application process will help you decide whether it is worth it.
Step 3: See What Grants Are Available
Review the list of funding sources for your state. Go to the Access Financing Wizard and check out what is available in your area. You'll be asked to fill out your purpose and type of industry. It helps your chances if you are a woman, minority, veteran, or Native American. It will also help if you're located in a rural community.
Alternatives to Grants
Grants are a great way to fund your business but they're certainly not the only way. Other options for securing operating capital include business loans, partners, angel investors, or selling assets.
Crowdfunding is another funding source that's become quite popular. In this method, popularized by companies such as Kickstarter and GoFundMe, you offer special products, packages, or other benefits to those who fund your startup or project. You can set these up so that you only fulfill the orders if you meet your funding goal, so it's a great way to minimize risk. There's just no guarantee you'll get the funds.
- A small-business grant is seed money for a business startup or project, usually offered by government agencies, nonprofits, or certain businesses.
- Grants are usually awarded to nonprofits or government agencies that in some way further a government or other community initiative.
- They do not have to be paid back, but there are usually strict reporting criteria to make sure the grant recipient is meeting the goals of the grant initiative.
- In order to receive a grant, you'll have to search for and apply for grants that fit your business.