Access to capital is a big concern for many small business owners. Whether it’s to open a brand new company or to expand an established business, a grant can be a potential source for this much-needed funding. Nevertheless, there are differences between applying for a grant compared to applying for a loan; and in the case of a grant, the way you may be able to use the funds. Here’s a closer look at grants and how they differ from a loan.
Getting a loan depends mostly on the financial viability of your small business, as determined by the information the lender asks for on your application.The lender then evaluates your application based upon their lending criteria. Grants are different: while grants do exist for small business, they are designated for very specific types of small businesses. You won’t find a list of government grants available generally for starting or growing a small business. You can, however, find grants designated for women-owned small businesses, minority-owned small business, and for specific industries such as medical and tech related businesses. Sometimes the parameters can be even more specific than that.
Finding a Grant for Your Business
Grants come from a variety of sources. The federal government offers grants that might apply to your business. You can also search the available grants in your area of business (for example, Transportation or Environment). State economic development agencies (find yours in this list) may have regional or otherwise specifically designated grants available. The easiest way to find out is to search the website or call and talk to an advisor in the agency for your state.
Private funders also offer grants—these can come from individuals, non-profit organizations, and for-profit companies.
Applying for a Grants
Grant applications vary widely, depending on the grant. Generally speaking, you’ll need to complete an application providing all the pertinent information the grant provider needs from your business and your personal history. You may also need to provide documentation proving you fit into a certain category of individual or business. For example, to win a grant for a minority-owned business, you may need to provide proof of social or economic disadvantage and a statement of personal history. If the grant comes from a private funder, requirements could seem even more idiosyncratic.
Using and Repaying a Grants
One benefit of a grant when compared to a loan is that grants do not have to be repaid. However, if you use a government grant you may be asked to provide information, data, research findings, or other results identifying what you’ve done with the grant money, so you may not be making a periodic loan payment, but you will be repaying in the time and energy required to capture and report that information.
Since grants tend to be for particular types of businesses, there may be stringent restrictions on how and when the grant money can be used. Sometimes the restrictions are simple, such as requiring the business be located in a certain area and that the business owner receive training or counseling before using the grant money. Before applying for a grant, be sure the grant stipulations will allow you to use the money in the best way for your small business.
Although the thought of “free money” sounds great, obtaining a grant is a rigorous process that requires a lot of time to find the right grant, complete the application process, and adhere to the documentation requirements and usage restrictions. You can waste important hours chasing the idea of a grant, if it’s not a good fit for your business.