It takes money to make money — this is the fact of life facing small business owners. Many may have a great idea for a startup but not the means to finance it.
Even the most modest small businesses require capital. For example, most microbusinesses cost about $3,000 to launch or between $2,000 and $5,000 to start a home-based business. And the costs go up from there. Additional costs for new businesses can range from web hosting to getting the proper paperwork filed with the state, and once you add employees, your costs could soar above $180,000 with five new team members.
Fortunately, there are ways to find free money to start a business. You can apply for government grants, for instance, available at the federal, state, regional, and city levels. You can also find general business grants and ones designed for specific business types, including green businesses, minority businesses, nonprofits, women’s businesses, and many others.
If you own your own business, this guide will explore how you can find free money and navigate the application processes to land the valuable help that can take your company to the next level.
A small business grant is a strings-free (no equity required) sum of money often given by the government to small businesses as part of a larger plan to boost the economy nationally or regionally. Investing in startups has become a common model for how the government encourages business growth, focusing on different parts of the country.
For example, Ohio has its Advanced Manufacturing Program, providing grants of up to $500,000 to encourage manufacturing innovation. Meanwhile, Connecticut’s Manufacturing Innovation Fund Voucher Program (MVP) provides grants of up to $49,000 to cover the costs, at least in part, for new technology, the expertise to use it, and prototype development.
Arguably, the biggest pro of a small business grant is that, beyond it essentially being free money, it doesn’t need to be repaid. However, you want to be mindful of some of the baggage that they can carry. They often come with a long application process and strict eligibility, and you also have to be sure you use the money as the grant stipulates.
While it’s a highly competitive and often lengthy process to get the limited number of grants out there, there’s no reason you shouldn’t consider it if you find one that works for you. So, let’s get started.
Before you go through applying for a grant, read the application criteria closely to make sure it really applies to you. Ensure that your goals to start or take your business to the next level align with the organization offering the money. Since it will require a lot of time and effort to pull together a grant application, you need to be sure that you have a reasonable chance of success, meeting any eligibility requirements.
Some tips for securing a business grant include:
Some things you might be asked to make part of your grant application include:
In many cases, it’s hard to get a small business grant if your business is in the early startup phase. Also, many grants include a lot of strict requirements that might be hard to meet. If you don’t qualify for grants or want a freer hand in handling your business, it might be good to apply for a small business loan.
Yes, you need to qualify for loans with the right credit score and pay them back with interest to the lenders. Still, you might be lucky enough to find a small business loan with relaxed requirements, such as a low minimum time being in business or a smaller monthly income. A business grant may not give you all the money you need, so a loan could be required to supplement or replace it.
Among government agencies, the U.S. Small Business Administration (SBA) is a good place to investigate the possibilities for grants and other types of financing. Its funding programs cover small business loans, sources of capital investment, disaster assistance, and more. You can arrange to meet with a local financial counselor to discuss financing possibilities.
Small business grants for new and existing businesses run the gamut, from ones offered by different levels of government or corporations to grants made available to specialty small businesses, including those run by minorities and women.
With the COVID-19 pandemic sweeping the country at the time of this writing, many small businesses are looking for financial help to keep them from shutting their doors permanently. For its part, the SBA offers special relief funding for impacted businesses, paying six months of principal, interest, and any associated fees, and providing automatic deferments for certain loans.
COVID-19-specific relief funding includes:
When looking for a federal grant, qualifications vary from grant to grant. Go through each one carefully, and you may discover that your small business is qualified to apply to more than one. A good place to start looking is Grants.gov, which is set up to provide information for all federal government grants across agencies. The site also includes grants for school systems, local governments, individuals, and nonprofits, so you’ll need to sift through to find the ones right for you.
To be an eligible small business, you have to be for-profit, primarily operate in the United States, and no larger than the maximum size requirements set for your industry. Applying for a grant through the site or the government’s mobile app involves:
The Small Business Innovation Research program (SBIR) is a highly competitive, awards-based program enabling some small businesses to participate in federal research and development that demonstrates the potential for commercialization. Small businesses are qualified to participate if they are:
Like SBIR, the Small Business Technology Transfer program (STTR) concentrates on funding research in the research and development arena. However, the STTR program differs in that it “requires the small business to formally collaborate with a research institution.” Its “most important role is to bridge the gap between performance of basic science and commercialization of resulting innovations.”
Many startup businesses also search for grant opportunities through the federal government’s USA.gov. The site warns, however: “The federal government does not offer grants or ‘free money’ to individuals to start a business or cover personal expenses, contrary to what you might see online or in the media.”
It does support critical recovery initiatives, innovative research, and many other programs, providing grants to qualifying organizations that include:
Most grants are intended to fund projects that will “benefit specific parts of the population or the community as a whole.”
To stimulate economic growth at the state, regional, and even city levels, startup businesses have access to various grants designed for specific purposes. The U.S. Economic Development Administration (EDA) is a good place to start looking. The Department of Commerce agency promotes economic growth, entrepreneurship, and innovation by offering grants, resources, and technical assistance to communities. You can also find funding opportunities and support resources at the state level — including EDA regional office and state government contacts — through the Economic Development Directory.
Most state governments offer programs such as Louisiana Economic Development’s STEP export program, which provides more than $6,000 of reimbursement for small businesses that are new to exporting or ready for market expansion. Be sure to do more research on what your state might offer.
Local Small Business Development Centers (SBDCs) can help connect small businesses with financing opportunities and provide counseling and technical advice. Most of the SBDCs are associated with state universities or local economic development agencies.
Many corporations have philanthropic components to support local communities, including nonprofit organizations and small businesses. These include:
A variety of organizations provide small business funding opportunities for specific demographics, including minority businesses and businesses run by women. A good place to start researching these is the U.S. Chamber of Commerce, which also has a Save Small Business Initiative, providing financial guidance to businesses hit hard by the coronavirus pandemic.
The resources for minorities include the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) Program, giving minority businesses “a fair opportunity to compete for federally funded transportation contracts,” and the Minority Business Development Agency (MBDA), which “promotes the growth of minority-owned businesses” through a variety of targeted grants and loans.
Funding opportunities for women-run businesses include 37 Angels, which seeks to close the gender investment gap by supporting early-stage startups, and the Female Founders Fund, which invests in up-and-coming women-owned and women-run startups.
While it’s not easy to start or run a small business with almost-empty pockets, it’s good to know that the possibility of no-cost and low-cost funding is out there for your business idea. For the best chance of success, understand and articulate your business’s value proposition, do the requisite research, and be thorough in your grant applications, answering every question and meeting every requirement without skipping any section.
You can also rely on the services provided by ZenBusiness, with all the tools, guidance, and expertise you need to launch and run your company. From setting up your new business bank account and credit card to helping your company stay in compliance, we provide the resources required to help your company thrive.