Small Businesses Grants: How They Work and How to Apply
If you’re a business owner, a grant might be something you’ve primarily associated with non-business initiatives, like art or nonprofit projects. However, government business grants and foundation-sponsored business grants can be an excellent way to get funding for a specific purpose as it relates to your company.
Simply put, a grant is a sum of money that’s given to a business in need or on a mission with a clear social, economic, or research focus. While there are government grants for small businesses issued by local, state, or federal branches — corporations and foundations also offer them.
Grants are usually cause-based, supporting a particular initiative or focus that’s important to the organization, like research and development, minority- or women-owned businesses, etc. There’s no interest attached to the funding, and you aren’t expected to pay it back. While this concept of “free money” might sound too good to be true, it’s not. The only catch? Competition can be fierce, as the organization issuing the grant only has an allotted amount of cash to provide, which is typically either split between a small number of businesses, or given just to one.
There’s no question that grants can be incredibly valuable to small businesses — but as with any financing source, it’s crucial to do your research to determine if it’s the best way for your company to pay for its needs. Here’s everything you need to know before beginning the process of seeking grant funding.
Pros and Cons of Business Grants
There are benefits and drawbacks to grants. In contrast to loans and lines of credit, you aren’t required to pay the grant money back after you receive it. And because the money is awarded to you, there is no interest or monthly fees associated with it. In addition, the funds are usually provided in one lump sum, so you have access to all of it at once — an advantage if there is a particular item or initiative that you’re hoping to cover the costs for.
Receiving a grant can also increase your chances of being approved for another one in the future, since it demonstrates your merit and trustworthiness to other organizations.
However, there are several factors to be aware of if you’re considering small business grants as a means of funding your business. One of the biggest disadvantages associated with grants is the length of time it can take to go through the process. While it depends on the organization, the timeline from application to funding can take as long as a year or more, since grants are evaluated subjectively by either a panel of reviewers or sometimes even individual staff members, especially if you’re dealing with a foundation or nonprofit with only a few employees. So if you’re hoping for fast cash, grants are generally not your best bet.
Another challenge is that unlike most traditional funding options, there can be some stiff competition depending on the grant, since there’s typically an allotted amount of recipients — and in some cases, only one. While you obviously can’t predict whether or not you’ll be selected, the more tailored the grant is to your business or the desired purpose of the funding, the better your chances are.
Finally, as mentioned above, business grants usually have a very defined purpose, and can’t always be used for anything you’d like. You’ll usually be required to put the money toward a designated area, like technology development, and will likely have to explain in the application process exactly how you plan to spend the money.
For businesses seeking a large sum of cash, a grant may not be the best option — or at least, shouldn’t be the only source of financing. The maximum amount you can receive varies by the organization issuing the grant. The Small Business Innovation Research (SBIR) grant, for example, can provide anywhere from $150,000 to $1,000,000. But most (especially those offered by local companies) tend to provide fairly small sums, from $10,000 to $50,000. Considering the drawbacks above, it typically makes the most sense to go the grant route if you’re seeking a relatively small amount of money for a very specific reason and feel that you can confidently demonstrate a clear need that stands out from that of other candidates.
How to Get a Small Business Grant
The application process and qualification criteria vary based on the organization that’s issuing the grant, but corporate grants are typically less stringent than government grants. When it comes to applying, it almost goes without saying that you should first make sure you meet all of the prerequisites — as some organizations have stringent requirements about number of employees or business type — and make sure you provide information that’s as complete and accurate as possible. Thoroughly proofread your submission and double check aspects or requirements that are easy to overlook but can instantly disqualify you, such as word or character count. Here are some other tips to keep in mind that can up your chances of acceptance.
Match the Mission
You should also make sure that your business aligns with the values and mission of the organization you plan on applying to. This will not only increase the likelihood that you’ll be selected as a grant recipient, but also help you to tailor your application to fit the requirements of the sponsor. As mentioned above, businesses that fall into a designated category — like women- or minority-owned, eco-friendly, etc. — often stand the best chance of qualifying for specialized grants, as there tend to be fewer companies that meet the criteria to apply.
Learn from Past Grant Recipients
If possible, another helpful step is to familiarize yourself with previous winners of the grant. Reading about those that were successful in receiving funding from the issuing organization can give you a huge leg up in terms of potentially understanding the values, qualities, and qualifications that may help you stand out from the pack.
Focus on the Facts on Your Grant Application
Including numbers and figures is another great way to provide concrete proof that your business is deserving of the particular grant. For example, if you can show data that supports demand for your product and growth potential, this can illustrate your success in a direct and objective way and make your application that much stronger. If you’re looking for a startup or new business grant and don’t yet have these figures, going broader and citing more general statistics about your industry, like growth rate or market size, can work as well.
Overall, a comprehensive and solid business plan can distinguish your company from the pack and better explain your needs. Now is also a good time to tout any awards or accomplishments you’ve won in the past; don’t be afraid to share examples of positive recognition that can convince the committee that your company has an established, positive track record.
Share Your Business’s Story
Don’t underestimate the power of telling the story of your business if it can strike an emotional chord with the organization or provide a compelling reason why the grant could make a difference for you, either. Some questions to consider as you craft your submission are:
- Why did I start this business?
- What kind of difference was I hoping to make or problem was I hoping to solve with my product or service?
- Is there a particular event that happened or a challenge that I overcame that illustrates a particularly important aspect of my journey so far?
If there’s a recommendation component (which many grant applications require), it’s best to reach out to your contacts as far in advance of the deadline as possible so you aren’t stuck waiting for those endorsements to complete your submission. The same goes for any public or customer voting programs, which are an element of some applications; you’ll want to plan ahead to determine how and how often to encourage your customers to cast votes — like through a social media post on a daily basis, for example.
Address Any Shortcomings
While you obviously don’t want to discuss the weaknesses of your business in depth, it can certainly help to get ahead of any potential questions that the organization might have about an aspect of your business that could require more explanation, like your business model, for example, if it’s complex or potentially confusing. Being as thorough and honest as possible can paint you in a more favorable light to the judging panel.
Leverage Your Connections
It may also help to acquaint yourself with the particular organization’s grant officer to build a relationship and gain insight into what they might be looking for from an applicant. Finally, while it’s not necessary for every business, it can be beneficial to bring in an outside expert — like a consultant or accountant — to advise during the process and review your application before you submit it to increase your chances of success. If you plan on applying for multiple grants, consider hiring a dedicated grant writer, who is experienced in crafting these kinds of applications. However, taking the time to research all of the potential grants available and selecting one or two that you feel you’ll have the best chance of winning can often be a better use of both your company’s time and money.
Even after you submit your grant application, it may be worth the effort to follow up with the organization once or twice, especially if the review period is lengthy. With so many submissions to sort through, this can go a long way to keep you top of mind and in good standing with those who are evaluating the applications.
Where to Find Business Grant Opportunities
If you’re looking for a grant, there are plenty of places to find options that may be right for you. While it primarily depends on the type you’re looking for, a good place to discover federal grants is grants.gov, which is a large, searchable database of opportunities, categorized by organization. The Small Business Administration website also has a handful of SBA grant programs listed that can help you narrow your search. While there are not SBA grants for starting or expanding a business, there are grants for nonprofits, resource partners, and educational organizations that support entrepreneurship.
For regional or local grants, your state’s official web page will likely have a section for opportunities you can pursue. Of course, your own industry may have dedicated grants as well, so it’s worth a quick search for your particular field.
To get started with finding the best grants for your organization, here is a list of some specialized resources that may help you identify appropriate opportunities:
- Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs: Both the SBIR and STTR grant programs provide money to for-profit small businesses with 500 employees or fewer that focus on scientific or technological research and development for potentially commercial purposes.
- Visa Everywhere Initiative: Expressly geared toward startups who are creating solutions in the commerce and payment spaces and open to companies around the world.
- The Amber Grant Foundation: Women-owned businesses have the chance to receive $10,000 each month — and $25,000 in the month of December — through The Amber Grant Foundation.
- Black Founder Startup Grant: If you have a legally registered business and identify as a Black woman or Black nonbinary person who is seeking investor funding for your company, you can apply to receive between $5,000 and $10,000 from the SoGal Foundation and its partners.
- U.S. Department of Energy (DOE) Grants: The U.S. Department of Energy gives grants to small businesses that are doing work in the fields of clean energy research and development.
- The Military Challenge Award: Veterans, reservists and transitioning active duty military members (or their spouses) whose businesses have a social mission for the military community can participate in this pitch contest, sponsored by the Street Shares Foundation.
- Walmart Local Community Grants: This program, sponsored by Walmart, is specifically for community-focused non-profits, and provides $250 to $5,000 to selected recipients.
- Nike Community Impact Fund: This partnership between Nike and the Charities Aid Foundation of America, gives grant money to urban nonprofits that serve their communities through sports programs.
- National Institute of Health (NIH) Grants: For small businesses with a focus on biomedical or behavioral research, the National Institute of Health has thousands of grant opportunities listed on their website.
- Economic Development Administration (EDA): Regional and national economic development projects can receive funding for projects from the EDA, a subset of the Department of Commerce.
- Small Business Development Centers (SBDC): In addition to your state website, SBDCs can also help you find local opportunities.
Free business funding is free business funding, so small business grants are a worthwhile option to pursue. However, due to the stiff competition and often lengthy funding timeline, if you need additional business funding, grants shouldn’t be your only plan. If you’re looking for alternative funding beyond small business loans, perhaps because you haven’t been in business long enough to qualify, you do have more options. If you’re a homeowner, your home equity could provide the extra funding you need to launch or scale. Here are four ways to access that equity.
- Home Equity Loan for Business Funding
A popular option for many homeowners, a home equity loan lets you borrow against the equity in your home — with the home serving as collateral. One advantage is that your monthly payment will stay consistent every month due to fixed interest rates. Plus, repayment periods range from 5 to 30 years, giving you time to pay the money back, and the interest that accrues on your equity may be tax deductible. But it’s important to remember that a home equity loan is a second mortgage on your home, so you’ll be responsible for another payment every month beyond that for your original mortgage. Finally, while application and approval requirements differ by lender, some can be quite stringent and restrictive, making the process difficult.
- Home Equity Line of Credit (HELOC)
A HELOC can be fantastic in terms of flexibility for your business, because it gives you access to your home equity in the form of a credit line from which you can borrow as much money (up to a maximum) as often as you want without being penalized. Like home equity loans, the repayment periods are typically flexible, ranging from 15 to 20 years. However, HELOCs usually have variable interest rates, so your payments have the potential to fluctuate every month, which can be a disadvantage if you want the peace of mind that comes with predictability. You also run the risk of having the credit line frozen by the lender if your score or home value drops too low.
- Cash-out Refinance
A cash-out refinance replaces your original mortgage with one with a balance larger than what you owed, giving you the difference. There are advantages to this option, including the opportunity to secure a lower interest rate on your mortgage. But it’s important to remember that since it is a new mortgage, your payoff timeline will be extended and you’ll have to pay application, closing, origination, and potentially appraisal fees.
- Home Equity Investment for Business Funding
There’s an alternative option to a business grant that also gives you money in a lump sum, can provide you with cash in as little as three weeks, and allows you to use the money however you choose — without the fierce competition and uncertainty that can come with the grant application and selection process. A Hometap Investment lets you tap into your home equity to get cash in exchange for a share of your home’s future value, without interest or monthly payments.
See if a Hometap Investment might make sense for your business needs. Take our five-minute quiz and find out today.
You should know
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.