Small Business Grant Definition

co-workers passing paperwork for a small business grant
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Small business grants are small amounts of seed money that further the goals of federal, state or non-profit organizations. Unlike a loan, you don't have to repay it. But you do have to prove you can achieve the goal. 

Unfortunately, the Federal government does not award grants to start or expand a small business. That's short-sighted since small businesses create 65 percent of all new jobs. But half of all these small companies fail in the first five years, destroying the jobs they created. Therefore, the federal government is very careful to only award grants to companies that get the most bang for the buck.

Types of Grants

Grants are usually only available for specific types of businesses or activities that the government wants to encourage. There are 20 categories on the website alone. These range from agriculture to transportation. They are 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 non-profits, but if your business meets their goals, it's worth a try. They support affordable housing, services to low-income families, and job creation. Contact your local municipal government to find out more.

Take These Three Steps First

You could really waste a lot of time reading about, applying for, and waiting to hear about a grant. Although the money is "free," you'll spend time that could be invested in growing your business. If you receive the grant, you'll have to meet with the officials and submit reports showing how you're meeting the goals. Worse, you might easily get scammed and actually lose money. Before you do that, take these three steps to see if getting a grant is right for you.

First Step: Put together a business plan. First, find out if your business idea is worth it.

Before applying for any money, you've got to be able to describe your business and why it will be successful. You've got to be very clear on four things:

  1. What is your product or service? Is it something the market truly needs, or just something that you're good at and enjoy?
  2. Who is your target market? (if you answer "everyone," then you haven't thought it through. You've got to be more specific.)
  3. Who is your competition? How is your target market currently getting its needs met?
  4. Most important: What are you providing that no one else is? Answering these questions will help you to create your competitive advantage.

Second Step: If you want to apply for small business grants, first become familiar with the process. They are usually very detailed and time-consuming. There is no guarantee if you will receive one. Once you do that, you'll know whether it is worth it.

Third Step: 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 your location is a rural community. 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. 

Crowdfunding as an Option

Another source of funds that's become popular is crowdfunding. You sell partial ownership of your company to investors in return for funds. Unlike loans, they share the risk with you, so if you aren't successful, you don't owe them anything. But if you are successful, they receive part of the return.