How do you get a small business grant? Most aspiring solopreneurs have heard about the government giving away millions of dollars to help small businesses start and grow. The tale of available grants for small business is like a favorite bedtime story we hear as kids or a kind of folklore passed from one business owner to another. We’ve all heard the story, and we just know it just HAS to be true.
Here is the thing that might shock you: It is true! There are grants for small businesses available out there. I managed a nonprofit for over ten years that offered small business grants for entrepreneurs. I have also assisted state and local government agencies in awarding grants to small businesses. So, yeah, it’s real.
The reality is that finding them, accessing them, and managing them are going to be your real challenges should you decide to seek one. My goal in this post is to inform you about the pros and cons of small business grants so you can make an informed choice about whether making the effort to get one is worth your time and effort.
Understanding Small Business Grants
Let’s start with square one and here and I need to put on my nonprofit hat for a minute. It takes time and effort to research and apply for grant funding, but it can be worth it. The better you understand how grant programs work (and I managed a number of them), the better your odds of receiving one.
Government grants are “financial awards” (using the nonprofit lingo) given by federal, state, and local government (or other) entities to eligible grantees (grant recipients). A Government grant is a way for a government entity to partner with nonprofits and (in some cases) businesses to achieve a particular shared purpose. Government grants are often awarded to nonprofits and educational institutions that are called intermediaries. These intermediaries then offer funds to a small business in compliance with the grants purpose and criteria.
Nonprofits must apply for these grants through long applications that make writing a business plan look like child’s play. They are lengthy, paper-based forms that are peppered in federal statues, regulations, and written with on a variety of paper forms (look up an SF-425 some time). They take months to write and months to be approved, making the window for applying for a grant almost a year. If a nonprofit entity receives a grant (a minor miracle), periodic reporting to the awarding agency is always required, sometimes years after the grant is closed. The larger the financial award, the more rigorous the quantitative and qualitative reporting will be.
Understanding The Purpose of the Small Business Grant
Government grants always have a specific purpose (see the community organization page from the SBA for examples). They are meant to intervene where markets have broken down. Low-income individuals, for example, do not have access to capital like moderate or higher income individuals (they have no or poor credit and little or no assets). They have business ideas and with the right support, they can create viable businesses.
If your business receives part of a government grant, YOU and your business become part of the reporting requirements (through the intermediary). The government will want to know what was done with the money, whether the use of the money was an eligible use under the grant and any outcomes that occurred (like you started your business).
Understanding Your Eligibility
In addition to the purpose of the grant, eligibility is also another big concern for government grants. There are no all-purpose small business grants; they are more often directed at specific populations and exclude others. If a purpose of a grant is to help women business owners, men are ineligible. If a grant is to help low-income individuals to start a business, moderate higher income and individuals are ineligible. If the grant is targeting rural entrepreneurs, areas classified as urban are ineligible.
Understanding Use of Funds
Now if the purpose of the grant is aligned with yours and you are eligible, you may have a shot at some funding. There may be restrictions on the funds, however. You may not be able to by property, you might not be able to pay off debt, and you most certainly won’t be allowed to buy anything considered illegal. That said, many common business uses like purchasing equipment, buying inventory, and paying a few months rent may be allowed.
Where to Find Small Business Grants
The best place to start your search is your local Small Business Development Center (SBDC). These agencies are the federal and state government point of contact for everything small business in your state. The second best place to check is your state's economic development agency. These agencies make it their business to know who is helping small businesses and what resources are out there. Another good resource is this site from Nerdwallet.com and it has an excellent list to help you start your search.
Applying for a Small Business Grant
Once you have located a small business grant provider, contact them and ask about eligibility and application requirements. Don't get frustrated by what you hear! The person you are talking to knows that the grant program they manage is not for everyone, and you should know that now as well. If it doesn't look like you are eligible, ask if they know of another program that might fit you.
Weighing the Pros and Cons of Applying For A Small Business Grant
The main takeaway from the above is that grants have restrictions and conditions. Nonprofits will do their best to inform you about the grant you’re interested in and what restrictions and conditions go with it. My experience with most entrepreneurs is that their eyes glaze over when listening to it all. That’s a mistake!
You should weight the pros and cons carefully and see if the grant will do what you need it to do and whether it is worth your time to be involved in it.
Here are a few pros and cons to getting you started.
Pros
- You don’t have to repay it. Yep, that’s the big benny. You receive the funds (through a nonprofit intermediary), and you have no payments. Zero. Nada. From a startup perspective, that makes sense. You don’t want to be taking money out of the startup at the most vulnerable point in the game.
- It can be enough money to help home-based businesses. Grants are typically small, around $1,000 to $10,000. That’s enough for most home-based businesses and service-based small businesses. There are larger grants out there. The average for the Small Business Innovation Research Program (SBIR) can be over a $500,000, but these grants are more difficult to get ahold of and manage. Local and state economic development grants might be in the $50,000 to $100,000 range and also challenging to find and manage. The larger the grant amount, the more work you will do to find it and qualify for it.
- You can access the funds. If you’re looking for a grant, most likely in a situation where a loan does not make sense. The good news is, that is a big part of why small business grants exist in the first place. They want you to find them and access. Applying for them is challenging, but doable.
- You don’t have to worry about credit checks. Once again, grants are not loans. If you have poor credit or no assets, the odds of getting a loan is more like a moonshot. Not so for grants.
- Grants can be packaged with business support. Many times grants for small businesses include technical assistance. This is a blessing in disguise! Imagine getting support for the toughest business problems that you’re facing!
- The application process can make you stronger. The goal of the grant will be for you to start or grow your business. It will be important that the nonprofit assesses your business or your idea to determine whether you will succeed. You may end up getting asked a lot of questions and some you may not be ready to answer. Figuring those out can actually help you in many ways and make your business stronger. Pay attention to what is being asked of you and take the time to figure out the answers.
Cons
- Grants ALWAYS take time to get. Remember that link the application process I mentioned above? You will likely have to go through one as well. There may be other requirements of the grant that will take time to complete. Make sure you understand what’s being asked and expected of you and what amount of time it usually takes to complete it all.
- Grants ALWAYS have strings attached. What information will you be required to report on? How often is the reporting to be done? What other information do you need to provide? What other things will you be required to do to get access to the money? The earlier you learn these things, the better!
- Grant funds are ALWAYS limited and run out fast. Brands are not unlimited sources of funds. They run out. The earlier you get into the application process, the better.
- Grant funds are ALWAYS hard to find. Nonprofits want the whole world to know who they are and what they do. The reality is, few people are actually listening. Finding nonprofits that are actively seeking small businesses to partner with is a real challenge. I recommend starting with the state’s economic development agency and Small Business Development Center Network. These entities are usually involved or nova partners that are involved with small business grants.
- The application process will frustrate the hell out of you. I paid a lot of attention to our processes at the nonprofit I managed. I quickly learned that when clients were frustrated it was because of a breakdown in the process. Be ready for this. Nonprofits do their best with what they have, but it is rarely perfect
At the end of the day, there is no such thing as free money. In many cases getting a small business grant can be very worthwhile. The more informed you are, the better the experience will be.
What has been your experience with grants for small business?
