Small Business Grants
How to Uncover Free Capital Opportunities to Start Your Business
17 Min. Read
Table of Contents
- What Is a Small Business Grant?
- Federal Government Grants for Small Business
- State and Regional Grants for Small Business
- Corporate Small Business Grants
- Specialized Grants
- An Alternative Route to Funding
Any entrepreneur will tell you that starting a business from scratch isn’t easy.
Doing so is even more difficult when starting with little to no capital. While borrowing from banks or relatives is typically the go-to path for small business owners, it’s not your only option.
If you’re looking to secure a decent amount of capital to get your business off the ground, you might want to consider applying for a small business grant.
In this article, we’re going to discuss the key types of grants small business owners can apply for, as well as the differences between each type. We’ll also provide information on how to get grants, including how to find active grant opportunities that your company qualifies for and what you’ll need to do to apply for them.
How much startup capital do small business owners need?
The average amount of capital needed to start and maintain a small business varies. Wells Fargo lists this number at $10,000, whereas the Kauffman Firm, which consists mostly of high-tech firms, found that startup capital averages $80,000 a year.
What Is a Small Business Grant?
A business grant is a set of funds offered by a specific entity to an applicant company that fulfills a set of standards created by the providing entity.
As opposed to business loans, business grants are provided without the expectation of repayment. However, along with the standards mentioned above, companies applying for specific grants may be required to follow certain stipulations upon being provided the funds.
Along with that, it’s also worth mentioning that grants are given only to select applicants (i.e., those most qualified for them). Unlike business loans, which are offered on a case-by-case basis, grants aren’t available year-round—and your competition when applying for one will likely be pretty fierce.
If it’s within the realm of possibility for your company to qualify and be selected for a grant, you want to apply for it.
(If you don’t currently qualify for a grant due to reasons that are under your control, you’ll at least have an idea of how your business can grow moving forward.)
4 Small Business Grant Opportunities
The grants you’re going to want to look for typically fall into one of the following categories:
- Federal government grants for small business
- State and regional grants
- Private/corporate small business grants
- Specialized grants, including small business grants for women and minorities)
(Note that specialized grants have further stipulations regarding qualifying factors. We’ll get more into this later on.)
Federal Government Grants for Small Business
As the name suggests, federal grants are those which are provided by the federal government.
Federal grants are often thought of as being somewhat elusive, in that earning one is essentially a crapshoot. Since these grants are offered to organizations throughout the country, many small business owners overlook them, figuring that their company will never get chosen out of the sea of applicants.
While there’s some validity to this claim, it’s also a bit of a self-fulfilling prophecy. If you don’t put your all into applying for the grant, there’s almost no way you’ll be selected over a company that has. And, of course, if you don’t even apply, there isn’t any way for you to win in the first place.
The truth is, the prospect of earning a federal grant may be a bit more realistic than you’d think. Reason being, the qualifications tend to be pretty specific. Typically, federal grants are offered to companies who fit a set of stringent criteria.
Federal Grant Criteria
The three overarching criteria include:
- The type of organization you run and the services you provide
- The current status of your business
- How you plan to use the grant money if chosen
Federal grants are most stringent when it comes to the type of organizations being targeted. Such grants are typically offered to organizations that benefit and promote the welfare of our national community in some way. For example, grants are often provided to companies in the following sectors:
- Environmental conservation
- Childcare and education
- Scientific and technological research
Now, this doesn’t mean your business has to be a nonprofit to be eligible. However, organizations whose efforts aren’t directly focused on improving their community likely won’t be eligible for such grants based on further qualifying factors.
Federal government grants for small business are also more tailored to organizations that have been operating successfully for a sustained period. Again, this isn’t to say that brand new startups are excluded based on the age of their organization. It’s that companies just getting off the ground probably won’t be able to meet the criteria for the grant.
The organizations that are chosen for federal grant funding are those who have clear and specific goals for their business, as well as for their overall mission. Furthermore, these organizations also have a clear plan regarding how to reach these goals—and a solid blueprint for how they’ll use the grant money in question to do so.
Speaking of how the money is used, it all goes into research and development. In other words, organizations can’t use federal cash to fund their operational expenses—and they must be able to cover these costs as they increase their R&D initiatives moving forward.
It’s worth mentioning that specific federal grants are typically offered in-line with governmental initiatives. The grants are provided to organizations who the government believes will help them (the government) fulfill their own goals. Again, this is why many federal grants target welfare-focused institutions.
One final thing to note about federal grants is, while the competition and criteria may be fierce, the reward for being chosen will almost certainly be worth the effort. Many federal grants provide a minimum of a few hundred thousand dollars—and can sometimes reach into the tens of millions.
How to Discover Active Federal Grant Opportunities
There are several sites you can check out that can connect you with federal grants you may be eligible for, including:
- Grants.gov: Government website that allows you to browse federal grants by category, agency and eligibility
- Challenge.gov: Government website presenting grants in the form of contests, in which applicants are challenged to provide a viable solution to a particular problem or issue
- Grantwatch: A non-government website that acts as a database for grants for nonprofit organizations
Here’s an example of a grant that was recently posted to Grants.gov that aims to engage and educate America’s youth regarding environmental conservation:
Note that these postings also include further information related to the specific grant in question:
This supplemental documentation will allow your team to dig into the “nitty-gritty” of a particular grant before you reach out to the provider for more information. In turn, when you do reach out to take further steps in the application process, you can come to the table with a clear idea of what to expect—as well as what will be expected of your organization moving forward.
Again, if your company has even a chance of qualifying for a federal loan, you don’t want to overlook such an opportunity. Though the competition may be tough, the reward—both in terms of funding and national recognition of your organization—can end up leading to huge things for your business.
State and Regional Grants for Small Business
The federal government also provides individual states and even smaller jurisdictions funding to be dispersed through grants as the local government sees fit.
Like federal grants, state and regional grants will typically be offered as a means to an end for the providing government body. In other words, the organizations that are most likely to be eligible for such grants are those who serve to benefit the local community.
If your local government can attain its goals by better enabling your business to thrive, it’s a win-win scenario.
State and Regional Grant Criteria
Local grants tend to target companies that benefit the local economy, as well.
(In contrast, federal grants are more about national welfare—though the economic benefits are certainly a byproduct.)
It’s common to see local grants offered to companies that:
- Pledge to bring jobs to the area
- Provide products and services to other businesses in the local area
- Provide location-specific products or services (e.g., farming equipment in rural areas, etc.)
With fewer companies eligible for these localized grants by nature, you might assume that applying for state and local grants isn’t nearly as competitive as doing so on a federal level. On the one hand, these grants indeed attract much fewer applicants than federal ones do. However, the other side of this is that the companies that do apply all likely impact the community in some way or another.
In other words, competition is highly qualified.
Additionally, because state and local governments have much smaller budgets than the federal government, localized grants are typically smaller in size. This isn’t to say they aren’t substantial and wouldn’t have a positive impact on your business. However, you’re less likely to see local grants reach the same level of funding that federal grant winners receive.
Another caveat to take into consideration when applying for local grants is that they often work on a matching policy. Essentially, this means that grants are awarded to selected organizations after said organization has raised a predetermined amount of funding on its own.
Match grants usually work on a 1:1 or 2:1 ratio (but can also be much higher). When applying for 1:1 grants, a company will need to raise an amount equal to the amount of the grant before earning funding.
Providers of 2:1 match grant funding agree to pay two times the amount raised by an organization (as long as the said organization can raise the predetermined amount).
How to Discover State and Regional Grant Opportunities
To find active grants in your local area, your best bet is to head to Google and use search queries such as “(State name) state grants” or “(State name) local grants.” This will point you toward the section of your state’s government website that deals explicitly with government-issued grants.
From there, you can dig deeper into grant opportunities by your respective state.
You can also use GrantWatch mentioned above and similar commercial databases to find grants in your local area:
Like federal grants, the reward for earning more localized grants is more than just monetary. Because these grants are used as a means toward improving the area for the local population, having a chance to be a part of such an initiative will help you forge an image as a pillar of your community. In turn, the local population will be more than happy to patronize your business.
Corporate Small Business Grants
Private grants are offered not by the government, but by commercial organizations and companies.
Like the grants we’ve discussed thus far, corporate grants for small businesses are offered to organizations whose mission aligns with that of the providing company. In other words, private grants are typically awarded to those who can help the providing company accomplish a certain task or achieve a certain goal more effectively than had they “gone solo.”
That said, private grants are often targeted at organizations who provide more ancillary services to an industry or specific company. Again, the goal is to create a situation in which everybody involved in the process wins in some way.
Let’s take a look at a couple of examples:
Etsy Maker Cities
Etsy is an eCommerce marketplace that focuses on selling crafts created by its users, for its users.
The company’s Maker Cities grant aims to “grow local economies by building local wealth and economic power through entrepreneurial endeavors.”
Following are some additional details regarding the 2019 version of Etsy’s annual grant offering:
“We are seeking proposals that use data to drive innovative new programming that supports creative entrepreneurs in their areas and address the barriers they face related to accessibility, building community, small-batch manufacturing, resource sharing and collaboration.
The program will support nonprofit small business development practitioners to build not only the capacity of small and microbusinesses but also partner with their cities and other key stakeholders to grow, connect and help empower their local maker economy as an engine of local economic development.”
It’s win-win: The organizations that earn funding can help them improve their business, and Etsy will, in turn, have the ability to bring more entrepreneurs onto their platform.
FedEx Small Business Grant
FedEx’s Small Business Grant Contest is an annual event that awards “grants, prizes and insights from FedEx experts to help them grow their business and allow them to join a community of small businesses that offer peer insights.”
In soliciting applications for its annual grant, FedEx aims to attract companies that have a clear mission statement, a clear plan of attack and a substantial commitment to giving back to their community in some way. As we alluded to, “community” in this sense may refer to the local area an organization operates in, or it may refer to the community that exists within the organization’s niche.
For example, one of 2018’s winners was a coffee shop that donates a portion of its revenue to local youth and education groups. Another winner was a spice company run by veterans who work closely with Afghani farmers throughout their operations.
The common thread among most winners of FedEx’s grant is in their innovative or unique approach to logistics (this being the focus of FedEx’s services, of course). Again, it’s all about alignment: the small business whose processes impress the likes of giants like FedEx are well-deserving of any grant money they have coming.
The Structure of Private Small Business Grants
As you may have noticed if you checked out the examples mentioned above, the “makeup” of private grants is determined by the providing company.
Private grant offerings are often presented in “contest” format, in which a select group of “winners” is chosen on a predetermined date. The rules and processes of said contests will vary depending on several factors, such as the providing company’s industry and the type of grantee targeted. Additionally, many private grants are offered on an annual or semi-annual basis—adding to the “contest” feel when applying.
It’s also worth noting that private grants are usually quite substantial in terms of the dollar amount. Many companies offer runner-up prizes to applicants who showed clear promise in their initiatives. What’s more, the added publicity winning organizations receive will only add to the value they glean from the grant.
Simply put: The larger the providing company, the more your organization stands to gain from winning a grant from it.
In a literal sense, all grants are specialized in some manner or another.
For example, the grants we’ve mentioned before target companies working in specific industries or niches.
That said, when we refer to “specialized grants,” we’re talking about grants meant to help specific demographics within the business world. Most often, specialized grants will be created to assist female entrepreneurs, minority-owned companies and businesses run by veterans.
Specialized grants are offered by federal and state governments and also by private entities as well. As discussed earlier, they can be found by browsing government databases or through a simple Google search.
Examples of corporate small business grants for women, minorities and veterans include:
- The Amber Grant: A $25,000 grant given annually to a top-performing, female-owned business
- The Streetshares Foundation: A grant-based initiative focused on helping veterans create their own small business
- Operation Hope: This organization’s Small Business Development program aims to provide entrepreneurial guidance to individuals from low-income neighborhoods
It’s worth noting that the application field for specialized corporate grants is likely to be smaller than non-specialized grants (since only certain businesses will qualify). Of course, the competition will still be high in terms of quality, much like any other grant application process.
If your organization might be considered eligible for a specialized grant, you want to pursue the opportunity. Not only do you stand to gain a substantial amount of funding, but the publicity you’ll gain from earning a specialized grant will also help your brand expand its reach moving forward.
An Alternative Route to Funding
While grants do offer a wide array of possibilities for your company, there are a few drawbacks that can arise when applying for them.
First of all, the right grant for your business at a given point in time might not be available when you need it. As we said, government-issued grants are offered in-line with specific government initiatives. If your company’s mission doesn’t align with the government’s current focus, you might not be able to find the funding you need. Similarly, private grants are typically offered only at certain points of the year—often only on an annual basis.
Secondly, you might not be eligible for a particular grant based on what amounts to a mere technicality. For example, some state-issued grants are offered to out-of-state companies, as long as a certain percentage of their operations are done in-state. If your numbers fail to meet these criteria by the smallest amount, your company will be ineligible.
Finally, since grants are awarded only to one or a handful of organizations, there’s always the possibility that a more experienced and longer-living company could come along and edge your organization out of the running.
With all this in mind, you might be wondering what other options you have for securing capital for your business. If this is the case, your next stop should be to check out your options for taking out an SBA loan.
SBA loans are given out more routinely, on a case-by-case basis. As opposed to uncovering applicable grants at the right time, SBA loans will be there when you need them—as long as you qualify.
Along with this, since you aren’t competing for the loan in question, the lender’s decision is based solely on your organization’s financial situation and other such qualifications.
Furthermore, when taking out SBA loans from financial lenders, your organization will have a bit more say about the terms of the agreement.
While this doesn’t necessarily mean you have complete control over the terms, lenders will often provide options in terms of length and amount.
Yes, taking out a loan means you’ll have to repay the amount in full plus interest. On the surface, this makes it seem like securing grant funding is the way to go.
But, as we’ve mentioned throughout this article, your chances of being the selected company out of potentially hundreds—if not thousands—of similarly-qualified businesses aren’t high.
Applying for SBA loans, from a cost-benefit analysis perspective, will be much more likely to help your business grow.
Think of it like this: In exchange for repaying the agreed-upon amount, you get the certainty of securing the funding upfront (as opposed to not knowing whether your efforts will lead to the securing of grant funds).