The small business bank loan pipeline abruptly shut down during the 2008 global financial meltdown. According to the U.S. Small Business Administration (SBA), small business lending peaked at $659 billion in 2008. From the time the global economy imploded in late 2008 until mid-2011, small business lending dropped by 18 percent to $543 billion. Since then, the small business lending cash crunch has been easing somewhat.
In early 2013, the U.S. Treasury Department reported that small business lending through the Small Business Lending Fund—funds that are distributed to banks to loan to small businesses—had increased by $7.4 billion since June 2010, which represents a 20 percent increase. However, today, only the most creditworthy small businesses and entrepreneurs are able to access startup or expansion capital through small business loans. Everyone else must seek alternate pathways to obtain funds to start or grow their businesses.
With access to small business capital through traditional means being so tight, government grants have become a hot topic among cash-strapped entrepreneurs looking to start or expand a business. Unlike business loans, grants have the distinct, appealing advantage of not having to be repaid. Each year, the United States government supports businesses by providing billions of dollars in grants administered by 26 different federal agencies. More than 1,000 business grant opportunities are offered through the federal government each year, and thousands more are offered through state and local agencies. This—combined with the fact that government grants are perceived to be “free money” that has no strings and does not need to be paid back—has resulted in a huge spike in the number of entrepreneurs and businesses seeking government grants.
However, of the more than $537 billion in grants the federal government gave out last year, only about five percent (about $26.7 billion) were awarded to businesses. The remaining grants went to states, governments, governmental agencies, nonprofit organizations, universities, schools and school districts.
Federal grants awarded to businesses generally range from $25,000 up to the millions. If your business model does not address one of the national priorities, then you might consider reframing your project so that it does by partnering with a school, university or nonprofit organization. Look at your project from different angles and get creative.
It’s important to note that nearly all government grants awarded to businesses require the applicant to provide matching funds. This means that for every dollar in grant funds received, the applicant must contribute a certain amount of money. Some federal grant programs will only fund up to 25 percent of the total project cost, while others will fund up to 80 percent. Few, if any, will fund 100 percent of the total project cost.
If you want to find grant opportunities available through the federal government, start by visiting Grants.gov. This is the central point for finding grant and cooperative agreement opportunities available from the federal government. One hundred percent of all grant opportunities offered by all 26 federal grant-making agencies such as the Department of Energy, Department of Homeland Security, Department of Health and Human Services and others, are available through Grants.gov.
Many, but not all, state governments also offer business grants. These grants tend to be focused on technology development, education, job skills training and job creation, with awards ranging from just a few thousand dollars up to several hundred thousand dollars. Many local governments also offer grants to support area businesses.
The business grants offered through local governments are generally smaller, with most grants falling between $1,500 to about $100,000. Local government grants tend to focus on marketing campaigns for tourist development, business storefront improvements, business relocation or expansion incentives, workforce training or job creation.
Local and state government grants may or may not require the applicant to provide matching funds. Check with state or local economic development office to see what might be available where you live. Unlike the federal government, there is no central repository for state and local government grants for businesses.
If you’re looking for a grant to start a business, then you’ll need to focus your search on private foundations. The majority of charitable foundations don’t award grants for business projects, but there are some that do—most of these are focused on women’s and minority issues. Otherwise, your best bet to find a grant to start a business is to search for business competitions. These are usually sponsored by a private foundation, a corporate foundation or a university and typically offer grants of up to $100,000, along with ongoing access to expertise and technical assistance. Your favorite search engine is your best bet for uncovering state or local grant opportunities and business grant competitions in your area.
However, be cautious when researching or applying for business grants. There are a lot of scams out there. Virtually all of the information you need to find and apply for local, state, and federal government grants for businesses is available to anyone at no cost. And remember that no governmental funding agency, private charitable foundation or corporate foundation will ever charge a fee to apply for a grant.
Finally, keep in mind that researching, applying for and obtaining a business grant can be a time-consuming process that can take up to six months. Nevertheless, with the proper preparation and a bit of tenacity, it is possible and can be done.