When you’re starting a new business, finding funding can be tricky. There’s the need to balance funding requirements with not wanting to give too much of your business away in the beginning or take on too much debt right away. One option that isn’t utilized as much as some of the other sources of funding are small business grants. Grants are often dubbed “free money,” but what are they and how do they work? Who provides grants and what should entrepreneurs know about them?
What are small business grants and how do they work?
A small business grant is offered by both federal and state agencies, as well as some private companies and organizations. Small business grants don’t have to be paid back, unlike loans. Grants are given to not only businesses, but also individual entrepreneurs, and the fact that no repayment is required is certainly one of their most appealing features.
Along with being used to cover startup costs, small business grants can be given to help businesses during a time of growth or expansion.
Many grants are offered to specific types of businesses or business owners. For example, you’ll often see small business grants available for women-owned businesses, disabled Americans, minorities and certain groups that are underrepresented. While this is common, not all grants are only available to specific groups.
While grants don’t have to be paid back, they do tend to have pretty rigid requirements in many cases, and qualification can be very competitive.
So how do small business grants work? To put it simply, it depends. Many small business grants are geared toward certain objectives. For example, perhaps the funding for a particular grant could only be used to start a business in a certain industry or to purchase new equipment. There is also an application process, and businesses may be required to prove they meet such requirements.
Most grants are awarded competitively, which means that applicants are all competing for the same money. Grant programs also usually require follow-up and management to show that they are using the money for what they outlined during the application process.
Related: Top Small Business Grants for Women and Minorities
Why should entrepreneurs pursue small business grants?
The most obvious benefit to pursue grant money is that it doesn’t have to be paid back. You don’t have to give up equity in your company to receive funding, and not having to lose a portion of ownership or control is appealing to many entrepreneurs. You’re also not starting or growing your business under the burden of debt, which can be very advantageous in the long run.
However, just as there are pros to small business grants, there are cons. Some of the downsides include how time-consuming it can be to find grants and apply for them, as well as how competitive they are. Eligibility requirements are strict and, once you’re approved, you’re probably going to have people checking in on you.
How to find small business grants
There are quite a few different ways you can go about finding small business grants. If you’re searching for federal grants, you can use resources like Grants.gov, which is an extensive database of government-managed grant programs.
Many large private companies also offer grants, though it can be more time-consuming to find these because it requires you to search around for ones your business qualifies for. There are websites, however, that offer lists of many small business grants where you can compare your options and find the one that fits your company.
One example of a private grant is the FedEx Small Business Grant. Under this program, FedEx awards several winners up to $25,000, as well as up to $7,500 in FedEx Office print and business services. This specific grant is open to for-profit businesses that have been operating for at least six months and have no more than 99 employees. This is just one example of the thousands of privately-funded programs.
There are also specific organizations, such as the Veterans Business Outreach Center Program, and some states have their own government-funded business grant programs. The Small Business Administration (SBA) can be a good resource for identifying grants as well, and they do have a database of available options.
Sign Up: Receive the StartupNation newsletter!
Tips for applying for small business grants
First and foremost, if you’re applying for small business grants, it’s essential that you’re familiar with the requirements, and that you’re providing a complete, accurate application. Sometimes, entrepreneurs will submit the same information for every grant they’re applying for, and it may lead to missed opportunities because they didn’t follow specific instructions. It’s also important to ensure you have a great business plan before you start applying as many grant issuers will take this into consideration.
It’s not uncommon to bring in third-party professionals to help with the application process. For example, you may work with a consultant who can help you create a more compelling application, or maybe an accountant.
Finally, when you submit your application, stay in touch with the grant office. You don’t want to be intrusive, but you do want to ensure they have what they need from you and they know how to reach you if they need more information or they have questions.
