business Grants

It is fundamentally important to understand the difference between grants, loans, investment capital, and other sources of start-up financing and how these differences will affect your new business. This Section examines four sources of business funding: grants, loans, leases and private investing (venture capital and angel investors).


I. Grants

Grants are free funding provided by various sources (grantors) to enable you to perform a particular service or act as described in the grantor's request for proposal (RFP) and your grant funding proposal. Grants are free. While most publications focus on the federal government "Uncle Sam" as "grantor," the fact is that the federal government provides only a small fraction of the total amount of grant funds distributed each year, particularly for small business. State and local government agencies are also major grant providers, in addition to private and non-profit foundations, corporations and public charities. You do not pay any fees. What's the catch? There is none. The grantor is paying you to perform your services or provide your products in exchange for its grant money.

Two big advantages of grant funding compared to loans are: 1) they do not have to be repaid, and 2) they are not debts and do not appear on your credit history.

Generally, grants are awarded for projects that benefit a particular community or public service, such as creating jobs, community development, education, housing, environmental cleanup, and other causes favored by the funding source.

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Types of Grants

There are various types of grants available for your small business expansion or start-up. Determining which type you are seeking is a first step in your grant research process. (see Research, Section 3)

      A. Federal Government Grants

• Start-up grants, also called "seed money" or "program development" grants provide partial initial support for a particular business or project. They are not intended to fund it entirely. They can: a) help your new business get off the ground, and b) make your business more attractive to other funding sources by demonstrating that you have other sources of support in your local community or elsewhere.

Such grantors expect that once your business is started its operating costs will come from other sources, based on your business plan projections.

• Project Grants (Cooperative Agreements) provide funding for fixed or known periods for specific projects.Project grants can include fellowships, scholarships, research grants, training grants, traineeships, experimental and demonstration grants, evaluation grants, planning grants, technical assistance grants, survey grants, and construction grants. 
  

• Research grants support research or study on a particular issue. They are often provided through institutions such as universities or hospitals. Government research grants, for example, require small businesses or start-ups to join or partner with a non-profit  university to apply for research grants in their Small Business Innovative Research Grants (SBIR) and STTR (Small Business Technology Transfer) programs (see Sections 3 and 4 for details).  

• Direct payment with unrestricted use are grants without specific restrictions or use requirements for recipients. They give you as applicant a lot of flexibility for your the proposed business project. The downside of this flexibility is that these grants are more difficult to obtain because they are: 1) more competitive and 2) more challenging for you to determine exactly what the grantor is looking for in your grant proposal (see Section 3, Research)

• Direct payments for specified use are the most specific kind of grants. Grantors offer funding with detailed and specific requirements on how and when to use the funds.  These are often government-sponsored. Before you apply for such grant funding make sure the grantor's goals and mission match your business goals and mission (as stated in your business plan) almost exactly (see Section 3, Research) due to their specific use requirements.

Despite the common myth, the SBAdoes not offer grants to start or expand small businesses,although it offers a wide variety of loan programs. (See loans below and at http://www.sba.gov/financing)