What is a Small Business Grant?
Catapulting small business grant opportunities for economic development
Small businesses have a wide variety of funding options, particularly as they are rolling out a product or service. For some businesses, a business loan or other traditional funding option is the most desirable avenue toward investment. Traditional funding avenues are popular for many business start-ups, especially as they are building their business concept and business idea on a larger-scale.
However, some types of businesses may want to consider a small business grant for a business idea, especially when aiming to invest in the future growth of the organization. Small business grants can support businesses in their infancy stage, or when they are exploring expansion opportunities that require more initial investment.
This article will outline what a small business grant is, the types of grant programs that exist, and how businesses can get connected with grant opportunities.
Let’s first look at what a small business grant is.
What is a small business grant?
Small businesses are vital for communities, particularly for businesses that offer an important product or service that can bring about positive community change. Local grants and other funding services exist to provide financial assistance to these critical businesses that need it most. So, what is a small business grant?
A small business grant is a type of funding source that does not require repayment. Instead, a bulk of funds from a person, business, corporation, or government is set aside to be allocated toward funding programs or grant programs. Typically, there is a call for proposals to be submitted. At this point, the grantmakers determine the grant recipients upon receipt of grant applications that outline the goals, needs, and budget for a particular business idea. The selected projects or businesses receive the funds, providing extra cash for projects, growth, or expansion. This type of funding source is particularly helpful for start-up businesses or entrepreneurs who need more support at the launch of their business.
Some small business grants have certain eligibility requirements where they offer grants to certain business owners. For example, some entities may want to encourage women-owned businesses or specific research for a cause they are passionate about. When it comes to grant funding for small businesses, it is best to research the funding opportunities available for specific industries, especially within any small business development centers or small business grant programs.
What types of grants are available?
To find the grants that are available for small business owners, the best way to initiate the process is to research your options as much as possible. Finding grants for eligible businesses is a process akin to what non-profit organizations do when seeking funding. Identifying grant sources is only the beginning; it is critical that you understand the application process and the requirements of the specific funding opportunity. Grant research can be time-consuming; however, it will pay off if you are able to find the right opportunity that aligns well for your business goals and overall business plan.
There are many types of small business grants, especially in light of the ongoing economic concerns with the COVID-19 pandemic. Some of the types of grants include:
- Coronavirus small-business grants. The U.S. Small Business Administration introduced new coronavirus small-business grant programs as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. Many of these grant opportunities focus on technical assistance for the revitalization of arts and entertainment as well as support for the food industry.
- Federal small-business grants. Some of the most well-known grant sources and grant money comes from the federal government or government agencies, such as the Department of Agriculture or Department of Energy. The applications tend to be highly detailed; however, the source of funds is consistent and can help your business build a reputation on a larger-scale. Additionally, federal grants often include a federal research component, so if your business is able to supply important data opportunities, this type of grant could be a good fit for you and your small business.
- State and regional small-business grants. Small business development centers are at the heart of state and regional funding options. Identifying the location of this center in your area will help you gain resources and learn about possible funding opportunities. Many times, more localized agencies are aiming to promote business growth in particular sectors, especially if it encourages local community investment.
- Corporate small-business grants. Some large corporations designate some of their philanthropy efforts toward small business initiatives, particularly if they align well with the goals or mission of the organization. Small businesses that are able to connect with larger organizations can benefit from networking opportunities in the industry. This is especially helpful for self-employed businesses that may need more connections and support in their business planning and business expansion process.
- Specialty small-business grants. Specialty grants tend to focus on specific groups or populations, such as businesses started by women, veterans, or minority populations. Many organizations want to invest in entrepreneurship efforts of diverse business leaders so that the business landscape can be more diverse.
Where can I find a small business grant?
After completing initial research and finalizing your business plan, you are ready to begin the process of finding the right grant opportunity for your business. The best places to look for a small business grant include:
- Small Business Administration website: SBA.gov. This website provides a plethora of options for small business grants as well as small business loans. Many small businesses start with this resource to see what opportunities exist and how many small business grants they can immediately locate.
- Government grants website: grants.gov. This website has any potential government grant opportunity listed, including federal grants and local government grants.
- Amber grant: ambergrantsforwomen.com. This website was started by WomensNet and focuses on providing business grant opportunities to women. If you have a women-run business, this could be a great resource to explore further.
- Grants for veterans: militarybenefits.info/small-business-grants-veterans. This grant website focuses on promoting grant opportunities for businesses that are run by veterans. Veterans may need extra financial assistance as they work to launch a business after completing their military service.
- Small Business Innovation Research (SBIR): sbir.gov. If your business is engaged in research and development, such as scientific research, you may be eligible for grant opportunities within the SBIR program. This program has specific eligibility requirements and may preference businesses that incorporate technology in their service or product.
- Crowdfunding. Although not a traditional source of funding, some crowdfunding opportunities can help businesses gather funds from a wide variety of sources. Crowdfunding typically involves fundraising from a large number of individuals, typically through the internet.
What is the difference between a business loan and a business grant?
While small business grants are a desirable option for many businesses, particularly because they require no repayment, it is important to understand that they are not the same funding type as a business loan. In fact, there are many differences between a small business loan and a small business grant that small business owners should be aware of. The biggest differences between a loan and grant are outlined below:
- Taxes and interest. With a grant, the money that is invested into a business is considered income. As such, the money is taxable and must be reported on business tax documents. Unlike grants, loans come with interest. So, instead of seeing loans as “free money,” the funds are provided to the institution with the expectation that the money will be paid back, with interest added in.
- Business credit. Because grants are income, they don’t contribute to your business’s credit. However, with a loan, by repaying the amount borrowed, you are building the credit score and credit history for your small business. Building credit is a way to secure other loans (with possible higher amounts) in the future, if needed.
- Eligibility and qualification. While some loans certainly require qualifications to borrow money, they tend to have less eligibility requirements than grants. Grant opportunities are often very specific, where only a certain portion of businesses would actually be able to apply. Thus, generally speaking, more businesses have access to traditional financing options (like loans) than grants.
- Lack of payment. Since grants don’t require repayment, there isn’t the same concern with consequences for what happens when a loan isn’t repaid. With small business loans, if there aren’t regular, timely payments made toward the loan, there can be big problems for the business.
All of these differences should be considered when determining the best financial steps ahead for your business. Grants come with many advantages: lack of repayment, ability to find, and the benefit of having an application template once you apply to one opportunity. However, grants also have some disadvantages that businesses should be aware of.
Grants are generally awarded by the government, which may include central, state, or other government agencies. On the other hand, loans can be pulled from any commercial bank, financial institution, or money lender.
The grant application process can be highly competitive and time-consuming. Some of the grant application or grant contest timelines can take months, so if your business needs funding or investment sooner, you should either plan ahead or consider other financing options.
Grants are considered by many as the best form of financial assistance because you don’t need to pay it back and it does not bear interest. But at the same time, there are stringent requirements which must be fulfilled, and therefore it’s more difficult to successfully win a grant.
However you decide to move forward, grants can be considered an important way to boost business, support small business initiatives, and contribute to broader research goals across other sectors and industries.
Are you ready to further explore grant opportunities for your business? Are you ready to research what grant applications may be available for your small business?
Heartland is ready to help.
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