If you’re a small business owner looking for funding, you may want to consider applying for a grant. Small business grants can provide your organization with an influx of capital that you can use to achieve your short- and long-term goals.
While businesses often take out loans or court investors to get the funding they need, both of these options have their downsides. When you take out a business loan, you’ll be obligated to pay it back with interest, and private investors typically want a share of your business in return for their money.
With small business grants, on the other hand, you don’t have to pay any of the money back or give up any of your company. Perhaps this sounds too good to be true—but keep in mind that small business grants come with their own set of advantages and disadvantages.
What is a Small Business Grant?
A small business grant is an amount of money provided by a private entity or government program that, unlike a loan, you don’t have to pay back. Securing a small business grant can help you grow your business without worrying about the stress and financial obligations that come with a loan from a bank or a peer-to-peer lending program. You won’t ever be expected to pay back the grant or pay interest on the amount of money awarded to you.
So, in a sense, a small business grant is like someone handing you free money. You can use this money to launch a startup, improve aspects of your current company, or expand operations. However, it’s important to note that just because you’re not obligated to pay the money back doesn’t mean there aren’t strings attached to a small business grant.
Whether it’s the government or a private organization that issues the grant, they will likely expect you to spend the money a certain way and may impose restrictions on how you can use their grant money. In some cases, your small business may be subject to oversight, and you’ll have to work closely with the organization issuing the grant money to you (which can be both a good and bad thing).
Whether you apply for a government grant or a private one depends on your needs and the types of grants you qualify for. Government small business grants are available at the federal, state, and local levels. Private grants are often funded by larger companies and corporations hoping to develop strategic business relationships and fuel innovation in the marketplace.
Grants can be highly competitive, and the application process itself can be complex and time-consuming, so it’s important that small business owners know what they’re getting into before diving head-on into the application process.
Key Point: A small business grant is a sum of money given out by a government program or private entity. The recipient doesn’t have to pay back the grant—although they may be bound by certain restrictions—and they can use the money to grow and develop their business.
How Do You Know if Your Business Is Eligible for a Grant?
The organization issuing a small business grant will typically have stated criteria that lays out the requirements a business must meet in order to be deemed eligible for their grant money. Whether your business is eligible for a grant depends on the particular grant that you’re applying for. For example, sometimes the grantor may require a business to have fewer than a certain number of employees, or maybe they’ll require the business to operate in a certain industry, such as healthcare or education.
To receive a small business grant, you often have to belong to the group or organization that administers it. For instance, the National Association for the Self-Employed offers Growth Grants worth up to $4,000 to help its entrepreneurial members take their business to the next level. The grants are awarded on a monthly basis to qualified members in good standing with the organization.
There are dozens of different grants out there, issued by a number of diverse organizations, and each grant has its own unique aim. With so many grants out there, your business is bound to be eligible for at least a few!
Keep in mind that you can’t create a single grant application and send it out to every grant program in existence. Oftentimes, applying for a grant can be a long and arduous process. Almost every grant will require you to fill out a lot of paperwork and come up with a proposal tailored to that specific grant program. Therefore, it’s always a good idea to carefully check the details and eligibility requirements of any grant program before applying.
Here are three tips that can help you determine which small business grants you should apply for:
- Consider the goals of your own company and the goals of the potential grantor — do they align? For instance, if you have a company that helps underprivileged middle schoolers more efficiently study for exams, then it would probably be best to seek out a grant program that is specifically geared toward helping disadvantaged youth. The more closely your company’s goals align with those of the organization issuing the grant, the better the chance you’ll have of being awarded the grant money.
- Identify the improvements you will make or problems you will solve within your company using the grant money, if it were awarded to you. Having a clear idea of what you would like to do with the grant money will allow you to come up with an actionable grant proposal, which will likely make the application process go a lot smoother.
- When contemplating whether or not to apply to a specific grant, take a look at what businesses have been awarded the same grant in the past. Research what these companies do and how they used the grant money awarded to them.
Key Point: There are many grants out there and each one has its own application process. Take the time to review the details and requirements for each grant you’re interested in to determine whether your business is eligible.
How Do You Apply for a Business Grant?
A small business grant is an attractive prospect for many entrepreneurs. It offers all of the benefits of a loan—chiefly an influx of capital that can be used to hire new employees, invest in new technology, expand business operations, or aid the business in some other way—without any of the risks. Small businesses that receive a grant don’t have to worry about defaulting or failing to generate enough profit to pay back the interest that has accrued over time.
Such a valuable financial opportunity draws interest from all kinds of entrepreneurs and organizations in search of funding. Taking this into account, it should come as no surprise that small business grants are often highly competitive. While there is a seemingly never ending supply of businesses that need funding, there are only so many grants and only so much money that can be given out.
Given their highly competitive nature, it’s usually a good idea to commit a great deal of time and energy into putting together the best grant application you possibly can. It may be a good idea to schedule a meeting with funding sources before applying for a grant or, at the very least, speak to someone on the phone. Even a quick conversation can give you more insight into the goals and values of the grantor organization.
The Application Process
The grant application process varies from program to program. Grants that offer relatively small sums of money may have a brief and straightforward application process. On the other hand, the application process for big grants that hand out significant sums of money can, in many cases, be extremely long, complex, and involved.
In any case, here’s what the general application process looks like for many of the small business grants out there:
- Research: Do some research in order to find out which grants you qualify for. Carefully go over the eligibility requirements for every grant you’re considering applying to. The last thing you want is to fill out an entire application only to be rejected because you never satisfied their basic requirements in the first place.
- Prepare your application: Once you’ve found one or more grants that your business qualifies for, then it’s time to start the application process. In most cases, you should be able to find the instructions for applying to a particular grant, as well as the application deadlines, on the grantor’s website.
- Submit your application: Go over all of your application materials and double check that the information you’ve provided is correct. After you’ve done this, you can submit your application for consideration according to the instructions posted on the grantor’s website.
- Wait for a response: Some grants may allow you to track the progress of your application or lay out the next steps after you apply. If there’s no specific tracking information, though, then you’ll have to wait at least three to six months before following up.
Most grants require businesses to provide a variety of documents and relevant information in their proposals. The specifics depend on the program you’re applying to but, in general, the materials you include should make it clear why your company needs the grant money, how your company aligns with the goals of the grantor, and how you would use the grant money if it were awarded to your organization. You’re essentially trying to win the trust of the grantor and explain why your cause is worthwhile. Some documents you may be required to provide in order to prove this include:
- A cover letter
- A project narrative
- Case studies
- A business plan
- Business records
- Financial statements
- A budget detailing how you’ll spend the grant money
- Testimonials from community members
Filling out the paperwork for a small business grant application can take up many hours of your time. Thus, it might be a good idea to run a cost-benefit analysis to determine whether the required effort is worth the potential reward.
Alternatively, if you’re eager to get some grant money but don’t want to fill out the application yourself, consider hiring a grant writer. Grant writers can help you find grant programs that your company is well-suited for, write a proposal, and gather materials for the grant application. If you run a business that is constantly seeking out grant funding, then it may be beneficial to keep a skilled grant writer on full-time, as this will save you as a business owner a lot of valuable time and energy.
Key Point: Applying for a small business grant can be a long and time-consuming process. So, assess whether the time and effort it will take to complete an application is ultimately worth it for your business. If you determine that it is, then take the time to come up with a thorough proposal or consider hiring a grant writer to do it for you.
Government Grants for Small Businesses
The government offers a number of small business grants at the federal, state, and local levels. The eligibility requirements and overall aim of each grant often depend on the particular government agency offering it. Some of the government agencies that provide small business grants include:
- The US General Services Administration (Challenge.gov)
- Small Business Innovation Research (Sbir.gov)
- US Small Business Administration (Sba.gov)
- US Economic Development Administration (Eda.gov)
If you want to see a comprehensive database of the grants offered by the various government agencies, visit grants.gov. Or, if you’re simply looking for resources that will help you build and grow your small business, go to usa.gov.
While virtually every government grant is competitive, you’ll likely be competing with a larger pool of applicants at the national level. So as a small business owner, it may be in your best interest to prioritize local grant programs, as these are generally less competitive and may be more well-suited to your needs.
If you don’t find any local grant programs that interest you, then expand your search to the national scale. Look into the major grant programs offered by the US government, such as:
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR)
The SBIR and STTR are two grants that are highly sought after by small business owners. They are designed to benefit for-profit small businesses attempting to bring about scientific and technological innovation. One of the principal goals for both of these grants is to fund research and development so that these innovations can be brought to market as a commercial product at some point in the future.
To be eligible for these grants, you must operate a US-based small business with less than 500 employees and an owner who is a US citizen, or an ownership group consisting of more than 50% US citizens.
Both of these programs have three distinct funding phases:
- Phase I: A sum of between $50,000 and $250,000 is awarded to your small business for six months in the case of SBIR, or one year in the case of STTR. The goal of this first phase is to determine the technical merit, feasibility, and commercial potential of your organization’s efforts.
- Phase II: While the award in this phase is generally $750,000 for two years, funding is based on your performance in phase I. The goal of this second phase is to facilitate continued research and development efforts.
- Phase III: The goal in this stage is for your company to pursue commercialization based on the progress made in the first two phases. No funding is provided by the grant programs during this final stage.
US Department of Education grants
The Department of Education offers a wide range of grants aimed at small businesses operating in the education industry. Grants may be focused on improving education in anywhere from grade schools to the university level, and are often meant to be used for specific areas within the education sector, such as state education, special education, and rehabilitation.
Environmental Protection Agency (EPA) grants
The EPA offers grants to a variety of businesses, from small nonprofits to large state governments, with the goal of protecting human health and supporting important environmental projects.
State Trade Expansion Program (STEP)
This grant program is administered at the state level to help small business exporters. The goal of this grant for the government is to increase exporters and sales within a given state. Using STEP funding, small businesses can learn more about the practicalities of exporting and receive assistance with export development.
USDA Rural Business Development grants
This is a grant program designed to help provide small businesses in rural areas with training, technical expertise, and the development of other business functions. Grants vary in size, but requests for smaller sums of money are given priority. Your small business may be eligible for this grant if:
- You employ less than 50 workers.
- Your business generates less than $1 million in gross revenue.
- You operate outside an urbanized city with a population of 50,000 or more.
Rural Business Development Grants are awarded to public entities like towns, state agencies, and nonprofits, and the funds may be used for:
- Training and technical assistance
- Land acquisition or development
- Pollution control and abatement
- Rural transportation improvement
- Community economic development
- Long-term business strategic planning
Service-Disabled Veteran-Owned Small Business Program
The US SBA offers federal grants to service-disabled veteran small business owners. One of the perks of this program is that your business becomes eligible to compete for the government’s set-aside contracts. Since the federal government has an annual goal of awarding at least three percent of federal contracting dollars to service-disabled veteran-owned small businesses, you can face a greatly reduced amount of competition for these set-aside contracts.
To qualify for this program, you must meet some ownership and operational requirements, such as:
- Your small business must be at least 51% owned by one or more service-disabled veterans
- You must have at least one service-disabled veteran who participates in day-to-day operations and is responsible for making long-term decisions
- Eligible veterans must have a service-related disability
Key Point: The government offers a wide array of small business grants, and each has its own requirements and specializations. To view a list of all of the grants offered by government agencies, visit grants.gov.
Funding for Small Businesses Impacted by COVID-19
The COVID-19 pandemic has negatively impacted a vast number of small businesses. Lockdown mandates and the sharp economic downturn effectively crippled the finances of hundreds of thousands of small businesses across the nation.
Economic relief efforts aimed at supporting small businesses have been made by a few large corporations. For instance, Amazon created the Neighborhood Small Business Relief Fund, a $5 million fund intended to provide grants to small businesses around the greater Seattle area. Verizon also contributed $7.5 million worth of small business grants to the Local Initiatives Support Corporation, a nonprofit dedicated to supporting community development initiatives in underserved areas.
However, government aid is the most crucial and accessible source of relief for many struggling small businesses. In response to the COVID-19 pandemic, Congress passed legislation meant to alleviate the financial hardships that small businesses nationwide are facing.
The Paycheck Protection Program (PPP)
The goal of the PPP is to curb widespread unemployment by encouraging small businesses to keep workers on their payroll. Small business owners can take out PPP loans, which offer a number of benefits, such as:
- An interest rate of 1%
- Unsecured financing (no need to put up any collateral)
- No fees from the government or lender
As a small business owner, you can apply for a PPP loan through any existing SBA 7(a) lender or other qualified financial institution. You also have the option to apply for loan forgiveness through your PPP lender, which can defer your debt or eliminate it entirely. If you meet the SBA’s employment retention criteria and use the PPP loans for eligible expenses, then the SBA will forgive the loan.
Economic Injury Disaster Loans (EIDL)
The purpose of the EIDL program is to help small business owners meet financial obligations and cover operating expenses that could have been dealt with had it not been for a disaster such as COVID-19. The EIDL program has low interest rates—between 2.75% and 3.75%—and provides up to $2 million in financial assistance to small businesses or private nonprofit organizations.
The funds for this program have now run out. But, while funds were available, the SBA provided EIDL grants for small businesses impacted by coronavirus worth $1,000 per employee up to $10,000 max, totaling $20 billion in all.
SBA Express Bridge Loans
The Express Bridge Loan Pilot Program is for small businesses that currently have a business relationship with an SBA Express Lender. Through the bridge loan program, these small businesses can quickly access up to $25,000 in financing to cover a temporary loss in revenue. These short-term loans can be used to “bridge the gap” while they wait for their EIDL application to get approved.
SBA Debt Relief
To provide relief during the COVID-19 pandemic, the SBA is helping small business owners cover costs on certain business loans. For all current borrowers of 7 (a) loans, 504 loans, and Microloans, the SBA will pay six months worth of principal, interest, and associated fees. Additionally, the SBA will cover the principal, interest, and associated fees for new borrowers of 7(a) loans, 504 loans, and Microloans disbursed prior to September 27, 2020. This debt relief kicks in automatically, meaning you, the borrower, don’t need to fill out an application to receive it.
Key Point: The SBA offers a number of programs intended to provide financial relief to small businesses that have been impacted by the COVID-19 pandemic. For more information on these programs, including application instructions and deadlines, visit sba.gov.
As you can see, you have plenty of options when it comes to small business grants. If you’re an entrepreneur in search of funding, a grant will typically be much easier on your company’s finances than a loan that you have to pay back with interest. Plus, small business grants come in all shapes and sizes, and span almost every major industry you can think of.
But, of course, getting grant money isn’t exactly easy—grants are often highly competitive, the application process can be lengthy and difficult, and once you’re awarded a grant you have to abide by the grantor’s rules. Although business grants can be a great asset, your best bet is always to weigh all of the financing methods available and select the option that you think works best for you.