Small Business Grants: Are They Really Just Free Money?

smallIf you’ve ever performed a web search for small business grants, it may seem like there are government agencies and private foundations lining up to throw free money your way. According to some sources, getting small business grants is as easy as submitting your business information and signing up for a monthly subscription. Soon, the money will be rolling in… or so the story goes.

In reality, accessing grant money for your business often takes time, determination, and a degree of luck. There are grants available for small business owners, but obtaining them is not as easy as certain late-night infomercials would have you believe. The grants that are out there are generally designed with a special purpose in mind, and are available to businesses that aim to fulfill those goals.

Government agencies and private organizations that extend business grants don’t usually do so with reckless abandon. They want to spend their money with reliable business partners who can deliver on their promises.

Federal Grants for Small Businesses

According to the Office of Management and Budget, more than one of every six dollars spent by the federal government goes to contractors. That statistic may make it seem like obtaining federal grants would be easy. Unfortunately, there are limited opportunities for a small business to win grants from the U.S. government, and there are no grant dollars allocated to help start or expand a business.That being said, there are federal grants available to businesses in certain fields.

The Small Business Innovation Research (SBIR) program is run by the U.S. Small Business Administration with the goal of helping U.S. companies develop commercially viable technological innovations. Many federal agencies participate in the SBIR program, including the Department of Agriculture, Department of Energy, and the National Aeronautics and Space Administration (NASA). There are three phases of SBIR funding, each with its own goals for participating businesses.

It’s important to note that SBIR funds are meant to stimulate and sustain technological innovation, so many small businesses will not qualify for these grants. A company that manufactures aircraft components could be a more suitable contender than a local bakery looking to launch a new low-fat cupcake.

The Small Business Technology Transfer (STTR) program has a similar focus, though it requires participants to collaborate with research institutions during the first two phases of the program. Much like the SBIR program, STTR grants are intended to explore new technologies and bring them to market, when possible.

Grants made by the federal government are the result of bills passed by Congress and signed by the president, so the application process can be quite stringent. If you’re interested in competing for these funds, it’s crucial that you familiarize yourself with the particular requirements of the grant.

State & Local Grants for Small Businesses

State, county, and city governments may offer grants to small businesses. These dollars are usually distributed in order to help address economic or social concerns in the community. While the impact may be positive, this focus can limit opportunities for small businesses. For example, the SBA is only authorized to provide grants to non-profit or educational organizations. Small business owners should consult their local economic development agency to learn about government grants in their area.

Private Sector Grants for Small Businesses

Large corporations have been venturing into philanthropic territory more frequently as of late, with grant programs for the arts and humanities, social issues, the environment, and education. Household names like Bank of America and Google run their own grant programs. However, many private sector grants are only available to non-profit organizations.

How to Find Small Business Grants

The internet can be a useful place to research small business grants, but it also contains a lot of dubious information. It may be a more effective use of your time to reach out to local government and business development agencies directly. Your community may have a chamber of commerce that can also provide assistance.

When applying for small business grant money, you should be prepared to go into specific detail about how and when your business can bring the intended purpose to fruition, citing specific milestones and benchmarks that you’ll reach along the way. Your business will likely be competing with many other competent firms, so you don’t want to submit a lackluster grant application.

Small business owners seeking grant money should avoid frivolously applying for grants that aren’t a good match for them. It’s also important to remember that some grants require matching funds, so business owners should be certain they have the capital available to qualify.

Other Opportunities for Small Businesses

Just because small business grants may not be as accessible as advertised doesn’t mean there aren’t other helpful resources for entrepreneurs to utilize. While the SBA doesn’t make loans to business owners, it does provide assurances to lenders so that companies can more easily access funds. The 7(a) Loan Program can help small businesses obtain financing for startup costs, expansion, or new equipment purchases, among other things.

The federal government tries to help stimulate growth through small business contract set-asides. Any federal contract between $3,500-$150,000 must be reserved for small businesses, assuming that at least two or more can make competitive bids. These set-asides are intended to level the playing field against larger companies that may crowd-out emerging businesses. In addition, federal contracts exceeding $150,000 come with a requirement that the prime contractor reserves work for subcontractors.

Photo Credit: COD, Flickr

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