How Do Business Grants Work?

Over 5 million applications were filed to form new businesses in the U.S. in 2021, a 53% increase from 2019. Many of these small businesses utilize grants that can be gifted from a variety of sources, including the government, non-profit organizations, and academic institutions. 

What Is a Business Grant? 

Small business grants primarily promote entrepreneurship to individuals, businesses, or corporations. Companies also use grants to grow their businesses using government funding programs from local to federal levels. This funding can take the form of loans, grants, and investment capital. 
Corporate and non-profit grants can come from an array of sources, including the Halstead Grant to the National Association for the Self-Employed. The Amber Foundation also provides grants for women-run businesses. Additionally, there is Operation HOPE, an organization focused on supporting Black-owned businesses, providing a range of funding assistance and programs.

Business grants typically do not require repayment, however, when securing funding, applicants may need to meet certain criteria and adhere to strict requirements. 

How Do Business Grants Work?

In order to apply for funding, it's important to know the process and criteria for the type of application you are filing. Government grants, for example, may not be suitable for businesses that are looking to cover payroll costs, operating costs, or paying off debt. 

You should also pay attention to the timeline involved with different grants. Some may involve a lot of paperwork that requires details such as your business's reasoning for applying, market demographics, or the nature of your product or service. Additional documents may also inquire about your finances and may ask for details on your finances, marketing, or what you're using the funds for.

Grants can become overwhelming easily, but luckily, there are many resources available that provide funding opportunities:

Business grants generally do not need to be repaid, but they are often subject to taxation. Information regarding the tax obligations for various grants can typically be located in the business grant agreement. Or, the funding organization can provide tax information if it is not explicitly stated in the agreement. If you want a deep dive into the information, both the Internal Revenue Service (IRS) and state Department of Revenue websites are resources for understanding tax liabilities.
 
It's important to keep clear financial records so that you can prepare. Businesses will often set aside a portion of the grant for taxes. However, tax deductions may also be available on business grants if they are applicable to your business. 

Types of Business Grants

There are about five main types of grants based on their funding source: Federal, State, Municipal, Corporate, and Non-Profit Organization Grants.

Federal Grants

Federal grants are most commonly found on grants.gov, including grants issued directly or indirectly to small businesses. For example, let's say a  bakery wants to start a small business in a rural area of the country, they might apply through the Department of Agriculture (USDA). For businesses like a rural bakery, the USDA might have programs aimed at developing rural areas, improving agricultural practices, or enhancing food security. 

Other various grants are available through Grants.gov from categories like commerce, energy, or business. Another example is a grant program with a total funding of $20 million dedicated to enhancing cybersecurity infrastructure within small and medium-sized businesses. This program aims to “support the development and implementation of advanced cybersecurity technologies and practices, and strengthen cybersecurity supply chains.” It's important to note that most of these grants are intended to support research and development. 

On the other hand, the Small Business Administration (SBA), run by the federal government, offers two programs designed for companies building innovative solutions in their field. 

The first is the Small Business Innovation Research Grant (SBIR), designed to assist businesses that are working with nonprofit organizations or universities that drive innovation. Each year, they have a pool of over $3.2 billion in funding grants that range from $50,000 – $70,000 per, depending on the current phase of the research project. In some cases, grants are awarded in the millions of dollars. 

One company that found success from SBIR grants was the company, ThousandEyes, which worked with the National Science Foundation (NSF) to bring their patented Path Visualization technology to market. They were awarded a combined $750,000 in 2010 & 2011 to help with research, development, and deployment. By 2018, ThousandEyes had over 220 employees with over $110 million in funding. 

The other version of the primary grant program from the SBA is the Small Business Technology Transfer (STTR) program. Similarly to the SBIR, it awards grants to businesses working with nonprofits, including academic institutions, that are geared toward bringing advanced technology to market. Each year, over $453 million is allocated to these programs. 

The difference between the SBIR and STTR grants is that for SBIR grants, small businesses have the option to work with a nonprofit partner, while for the STTR it is required. 

State Grants

Each U.S. state offers its own variety of grants to small businesses, so it's important to review your local chamber of commerce to learn more about the various grants that are offered. Some may be industry-specific with the goals of promoting job creation or aligning with the economic objectives of the state. 

In California, there is the California Dream Fund providing grants of up to $10,000 for eligible businesses that participate in intensive training and consulting. There's also support for nonprofit performing arts organizations, with grants up to $75,000 available for employee expenses and other operating costs.

Municipal Grants

These types of grants are found at the city or county level and often don't require a research component. In Los Angeles County, California, there is the Economic Opportunity Grant (EOG) program, which offers financial support to microbusinesses, small businesses, and non-profits affected by COVID-19. Grants range from $2,500 for micro businesses to $15,000 or $20,000 for small businesses and $20,000 or $25,000 for non-profits. This program is part of a $54 million initiative funded by the American Rescue Plan Act and the California Office of Small Business Advocate, aimed at supporting businesses and organizations in their recovery from the pandemic's economic impacts.

Corporate Grants

Corporations also offer small business grants such as the FedEx Small Business Grant Contest, which offers a top prize of $50,000 along with funds for print and business services. It's generally open to businesses older than 6 months that have no more than 99 employees. There is also the Amazon Small Business Grant Program, which caters to businesses that make less than or equal to $1 million in annual gross revenue. The top 15 applicants who qualify can receive grants ranging from $15,000 to $25,000. 

Nonprofit Organization Grants

Lastly, there are many nonprofit organizations and foundations that offer grants. The National LGBT Chamber of Commerce (NGLCC) offers the Community Impact Grant Program. An initiative that provides grants ranging from $10,000 to $25,000 to LGBTQ-owned or ally-owned restaurants. There is also the Black Founder Startup Grant that provides $5,000 & $10,000 grants to Black women and nonbinary Black startup founders. This program supports entrepreneurs with scalable solutions and who plan to seek investor financing. 

How Do You Qualify for a Business Grant?

To qualify for grants, you need to carefully read the details and requirements of the grant proposal. Applications will often state requirements covering the number of employees, annual revenue, where the business is registered, and the objectives using the grant. Federal grants specifically often require a small business to partner with a nonprofit organization, which should also be taken into consideration, depending on the type of grant you are applying for.

The availability and acceptance rate for business grant applications varies based primarily on the source of funding. Federal grants are among the most competitive, but funding rewards can be some of the highest, reaching potential millions, depending on the project. Seeking grants from the state or municipal governments comes with less competition, as well as corporate or non-profit organization grants.

Get Granted A Head Start

There are endless amounts of grants available to small businesses with many options on where to source funding. Although, they all have one goal which is to support businesses and their efforts in entrepreneurship, job creation, and several other objectives. Small businesses make up a whopping 44% of the national economy, driving tons of economic growth and innovative solutions to various problems. Grants can be time and work-intensive, but the payoff can range from thousands to millions and change the trajectory of your entire business. And remember, grants rarely need to be repaid. If you are a small business owner looking for funding, network and pay close attention to grant requirements from local to state agencies. 

If you're looking for some inspiration to get you to the grant application deadline, check out our small business statistics list that will leave you driven and ready to grow.

 

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