Grants can sound like a dream come true for small business financing. If you qualify, you receive free money to operate and expand your company, and you don’t have to pay it back. But before you rush off to figure out how to get a small business grant, be sure to consider the whole picture. A grant might not cover your most pressing needs.
Grants typically come from the government, nonprofits or educational institutions. The federal government offers grants to encourage scientific research and development. Federal, state and local governments also offer grants to promote economic development, so businesses hire more workers. There are also grants to support underrepresented groups in the business community, like women, minorities and veteran business owners who could use extra resources.
How to Get a Small Business Grant
The federal government has a website, Grants.gov, where you can search for potential opportunities. You could also check with state and local government employment agencies to see whether they offer anything in your area.
The Small Business Association is another option. You can set up a meeting with one of their counselors, who can teach you how to apply for a small business grant. Finally, you can check with organizations that support your type of business. For example, women-owned businesses can apply for the Amber Grant or the Cartier Women’s Initiative Award.
Each grant has strict qualification rules, so not all will be the right fit. Make sure to read the fine print before applying.
Pros and Cons of Small Business Grants
The main benefit of taking out a grant is that you don’t have to pay the money back. That’s a nice financial advantage versus borrowing through a loan or taking on investors, where you need to give up part of your company. Grants are also a prestigious award, which means you could get press coverage if you qualify and boost your company’s reputation.
While these are all fantastic benefits, there are also some difficulties with applying for grants. As you can imagine, there’s a lot of competition for free money. Fewer than 200 out of 2,700 grant applications are accepted, according to the Society for Nonprofits, which means your chances of qualifying are less than 10%.
To increase your chances of winning a grant, you’ll need to extensively research which grants you could potentially qualify for and fill out a long application. You might spend weeks or months waiting before you receive a decision. If you qualify for a grant, there could be strings attached, like you need to hire at least five new employees by the end of the year or you won’t receive the entire payment.
Small Business Loans vs. Grants
When applying for a grant, consider how soon you need financing. Learning how to apply for a small business grant can take a long time and there’s still a chance you won’t qualify. These factors make them a poor fit for covering day-to-day needs like payroll or restocking inventory when your cash flow dries up.
But combining grants with small business loans can be a useful strategy, especially those from alternative lenders that can payout in as little as 24 hours. You can use loans when you need money immediately while using grants for long-term needs, like opening a second location or developing a new product. If you later qualify for a grant, you could then use that money to pay off your debt.
When you consider all the facts about grants, you can see that they are a good addition to small business loans but not a complete replacement. By using this information, you can decide whether a grant makes sense and if so, start planning how to get a small business grant.