Small business grants are sums of money given to a small business by another entity without an expectation of repayment. Qualification requirements vary by the grant opportunity, and the application process is competitive. So while a grant can be very beneficial to your business, it’s not guaranteed you will be selected to receive funding.
How Small Business Grants Work
Once you have found a small business grant opportunity that interests you, you will need to carefully read all of the information provided by the grant description. Each grant opportunity will have different requirements—some only require an application and operate lottery style, others require proof of demographic status, and others may require detailed business plans or essay submissions. The grant description will specify not only the factors you must meet to be eligible, but also what information and documentation you will need to submit with your application.
You will submit your application and documentation to the organization overseeing the grant, at which time it will compete for funding against other grant applicants. When applying for grants, it’s critical that you pay careful attention to the requirements and submit everything that was requested so your application isn’t rejected as incomplete.
Your application and supporting documentation will be reviewed by the award committee. If you are selected, you will receive the grant funds that you applied for. In general, grant funds are free money for your business, meaning that they do not require repayment to the provider like a startup business loan.
There may be restrictions on the use of the grant funds or reporting requirements detailed in the grant agreement. If you fail to meet the required uses or complete the post-award reporting, you may be forced to repay the grant in full. It is important that you fully understand your grant agreement prior to using the funds.
Who Small Business Grants Are Right For
Small business grants are an appealing way to acquire business funding; however, most grant opportunities are targeted at underserved populations, including women, minorities, and startup businesses. Additionally, if your business activities meet the current needs of government projects, you may be able to find a federal grant for which your business is suited.
Some businesses that may benefit from small business grant opportunities include:
- Startup businesses: Startups often have a difficult time obtaining financing, which makes grants an appealing form of funding.
- Women-owned businesses: Grants for women-owned businesses are available to help women overcome some of the challenges of startup funding.
- Minority-owned businesses: Grants for minority-owned businesses are often offered by nonprofit agencies aimed at supporting economic growth for these demographics.
- Businesses matching unique government needs: The federal government offers a multitude of business grant opportunities through grants.gov; however, these are generally very niche offerings.
Small business grants offer a great funding opportunity for your business if you can find one for which you are eligible and make it through the rigorous selection process. While funding is not guaranteed, there are steps you can take to increase the likelihood of receiving a grant.
Where to Get Small Business Grants
Small business grants are offered by a number of different entities, including the federal government, state and local governments, nonprofit organizations, advocacy groups, and other businesses. The best grant opportunities for your business will be the ones for which your business best meets the qualification requirements.
Some sources of small business grants include:
There are a number of small business grants offered by various departments and agencies within the federal government. Because these grants generally offer higher funding amounts than private sector grants, they are highly competitive.
All federal grant opportunities are listed on the website grants.gov. A search of that site will provide you with a list of current grant offerings. For example, the Small Business Administration offers two grants geared toward research and development, and the U.S. Department of Agriculture has grants for rural businesses to make energy efficiency upgrades.
State & Local Governments
Each state has a department that oversees the vitality of the state’s economy and commerce. The exact agency name varies by state. These departments and agencies may offer state-level grant resources or be able to connect you with other area grant opportunities. Because they are state-centric, these grant opportunities are generally less competitive than those offered by the federal government.
Some nonprofit organizations and advocacy groups also offer small business grants. These grants are generally targeted to align with the missions and values of the organization. For example, the First Nations Development Institute is a nonprofit group that aims to help Native Americans, Alaska Natives, and Native Hawaiians, and offers grants to benefit those demographics.
Large businesses sometimes offer small business grants as a way to give back to the community, and as an effort to foster their own public relations. For example, FedEx offers annual grants ranging from $15,000 to $50,000.
How to Get a Small Business Grant
Each grant offering has different requirements. Some grants have a simple application, others request that you provide a short video. Regardless of what the submission requirements are, it is crucial that you provide everything requested in the grant announcement. To help you in your quest for a small business grant, we have compiled a list of tips to improve your odds of receiving the award.
Five tips for improving your chances of getting a small business grant are:
1. Create a Well-prepared Business Plan
Having a well-thought-out and well-prepared business plan is key to successfully running a business, and can also be pivotal when applying for grants. Many grant opportunities require you to submit your business plan as part of the application process. This allows the entity offering the grant to evaluate your business’ potential, as well as what impact its grant funds will have on your success.
2. Look for Niche Grant Opportunities
Like small business grants for women, there are a number of grants available that are offered specifically to niche business owners or for very specific projects. Focusing your efforts on grants that are specifically geared toward you, or your business, can be more beneficial than applying for less specific grant opportunities. Whether you are a minority business owner or your business operates in a niche market, search for grants that match who you are and what your business’ primary function is.
3. Follow the Grant Application Instructions
If you want the award committee to take your submission seriously—or to even have your application make it to the award committee to begin with—it is important to follow the application instructions. Grant application requirements are often very specific about the information you must provide, the form in which the information should be submitted, and the timeline in which you need to submit the information. Pay special attention to all of these stipulations, and make sure you follow the directions.
4. Review Your Grant Application to Make Sure It’s Complete
Prior to submitting your application, review the application requirements to make sure you have addressed everything that was requested in the grant announcement. Did you complete all of the questions on the application? Have you included all of the required documents? A thorough review of your application prior to submitting it for review can help ensure that you haven’t missed anything.
5. Consider Meeting With the Grant Source
Depending on the source of the grant, you may be able to set up a face-to-face meeting with someone from the organization prior to submitting your application. Even if you aren’t able to meet in person, most organizations have a point of contact you can speak to about questions you may have about the grant process.
Pros & Cons of Small Business Grants
Like most things in life, there are pros and cons to small business grants. While they are effectively free money for your business, and there are many grants available that can easily be found online, they can be difficult to qualify for, have a short application period, and there are a lot of businesses in competition for the grants being offered.
Pros of Small Business Grants
- Grants are free money: Unlike a business loan, grants do not require repayment as long as you meet the requirements set forth in your grant agreement.
- There are many grant opportunities available: There are a variety of different grant opportunities available from many different sources. If you don’t qualify for one grant you find, there are likely others available that you will qualify for.
- Grant opportunities can be found easily online: It is easier than ever to find and apply for business grants online. A simple search can result in a multitude of possibilities.
Cons of Small Business Grants
- Grants are only available for a limited time: Most grant opportunities only arise once a year, and have a defined deadline. If you miss the deadline or submit an incomplete application, you will have to wait until the grant becomes available again.
- The competition can be fierce: Unlike borrowed funds, grants involve competing with other businesses for funding. The more competition for the grant, the more difficult it becomes to win.
- It can be difficult to qualify: Most grants, especially grants offered from the federal government and state agencies, have strict qualification requirements.
Alternatives to Small Business Grants
While small business grants can be a great funding option, they aren’t the best fit for every business. If after reading all of this you aren’t certain that a small business grant is the right funding choice for your business, you may be wondering what alternatives are available to you. Some alternative means of financing your business needs include short-term loans, lines of credit, and personal loans for business.
Some alternative means of funding your business include:
Short-term Business Loans
A short-term loan is a lump sum payment borrowed and repaid over a term of less than two years. These loans are often unsecured—meaning that no collateral is required—and provided by lenders that will look at the combination of your credit history and business performance to approve you for a loan.
Lines of Credit
A small business line of credit is a method of financing that allows you to draw against a predetermined credit limit—as needed—instead of receiving the full amount of credit upfront like a term loan. The advantages of a business credit line are that you only pay interest on the funds you draw, and the funds become available to be used again as you repay them.
Personal Loans for Business
A personal loan for business can provide you with the funds your business needs based on your personal income and credit profile. Because personal loans are not based on your business qualifications, they do not require business plans and financial projections as part of the application process. These loans are often easier for startup businesses to obtain than a business loan.
Small Business Grants Frequently Asked Questions (FAQs)
Can you get a grant for a small business?
It is possible to get a grant for a small business; however, most grants are highly competitive. To increase your odds of being awarded a grant, apply for the ones for which you are best qualified, and be certain to include everything in your application that is requested in the grant announcement.
How do I get free money to start a business?
There are grants available to start a small business; however, they are often difficult to obtain. Whether or not a grant would be sufficient to fully fund your business startup depends on the amount of funding you need. Grant amounts vary by grant type and source, but those available to startup businesses are generally less than $10,000.
Who is eligible for a grant?
Each grant has different qualification requirements. Carefully review the eligibility requirements for any grant you are considering applying for to ensure you meet all of those requirements. If you find you do not meet all of the requirements, continue searching for another grant. Failing to meet the qualifications will automatically exclude you from being awarded the funds.
Small business grants can be a great funding opportunity—if you can get them. Because they don’t require repayment, grants have no impact on the cash flow of your business. However, they are not easy to get. If you are seeking grant funds, focus your attention on the grants for which you and your business are best qualified.