Small Business Grants...What They Really Are

If I had a dollar for every time someone asked me what kind of grants are available for small businesses I would be rich and living on a beach somewhere. Everyone is looking for undiluted capital (fancy term for free money). The problem is that there really is no free money. If you can actually find and qualify for a grant there are always strings attached. You may not have to pay it back but you will definitely have to work for it.

So what are "Grants"? Grants are funds from public sources (government) designed to provide a good or service that is needed by the community but not economically feasible for the private sector to provide without subsidy. Typically grants flow from government agencies to non-profit firms to provide a specific public service. This is important because if you are a for-profit entity you will probably not qualify to receive grants directly from government sources. 

An easy example of how grants work are in the grants we receive to operate our Small Business Development Center (SBDC). The government determined that the creation of small businesses was important to building the economy. The challenge is that a large percentage of all small business that are started fail within the first three years. It is also shown that the odds of a business succeeding increases as the business owner gets more experience (either through running previous businesses or increasing the amount of time they have run the current business). So one way to increase that experience factor is to hire a consultant or coach. However, many people seeking to start a business can not afford to hire "experience" in the early stages of the venture. To address this the Small Business Administration started the SBDC program to provide this guidance and experience to small businesses at no charge. A private consultant couldn't do this for free and survive so the government basically pays for the consulting services to help get these businesses started.

Takeaways from this:

• If you are a for-profit entity you probably won't qualify for grants. There are exceptions particularly for science and research activity which I will cover in future posts.
• If there are people that will pay for your product and service and you can build a profitable business from this activity you probably don't qualify for a grant.
• There is no free money. Everything comes with a price whether it is interest and repayment or specific deliverables associated with the grant.

I have a lot more things that I will share regarding grants in future posts. If there are specific questions or information you would like to see covered leave me a comment.

Comments

[Eric Groupe]

How about loan options for - for -profit small business start-up?

[Michael Bowers]

This post is about grant availability but there are certainly more loan programs available to small businesses. Most are, however, subject to traditional underwriting and possibly more stringent control of the distribution of the funds. I am not aware of anything that is slanted to provide funds at more lenient credit terms to small businesses.