How business grants can impact business

Grants aren’t only for nonprofit organizations—they’re for businesses too. You can use business grants to get your startup off the ground or increase your overall capital.

If you’re looking for ways to take advantage of grant funding programs, here’s what you need to know about applying for business grants and how you can use them to build wealth.

person signing small business grant

Understanding business grants

A business grant is money awarded to a company in need of funding for growth, expansion, hiring, or development. Grants are typically given to startups, businesses looking to expand, or organizations that require research funding.

Although all grants have specific requirements for applicants, at the minimum, a grant program will expect a business owner to prove that:

  • They need grant money.
  • They will use it to further their business.
  • They have a specific purpose and goal.

There are generally two types of grants: Government grants from federal, state, or local government agencies, and privately-supplied grants from corporations or organizations.

Federal government agencies typically have a plethora of available grants open for application throughout the year for most types of businesses. By contrast, local governments offer fewer grants. However, the pool of applicants is also smaller, so you won’t face as much competition when you apply.

Additionally, each grant program has specific criteria, so plan to research which grants your business would qualify for.

For example, a women-run startup might look into applying for specialty grants that focus on educating and providing resources to female entrepreneurs. A business that had to shut down during COVID-19 may seek a grant that specializes in providing emergency financial assistance for those directly affected by the pandemic.

What business grants aren’t

You shouldn’t confuse business grants with loans. Although grant and loan money are both provided to businesses in need of funding, recipients don’t need to pay back grants. However, business borrowers do have to pay back loans within a certain period plus interest.

Another difference is that businesses acquire loans from lenders, whereas grantees can apply through a variety of resources, like the government, corporations, or grant organizations.

In the same vein, business grants and donations aren’t the same things either. Again, both provide money for businesses in need, but grant money must be spent a certain way. For example, you might need to use the funding for a project pre-approved by the grantor.

In most cases, a grant coordinator will be assigned to your project if you’ve been given a grant. The coordinator will ensure that the money is being used for the intention you stated when you applied for the funding.

That’s why grants have such specific guidelines: They are provided to fund a particular purpose. On the other hand, donations may be used in any way and are not tracked by the donors.

Alternatives to small business grants

Not everybody will qualify for a business grant or has the time to go through the application process.
That’s why applying for grants is low on many entrepreneurs’ lists: 56% of firms have relied on their personal savings, friends, or family members to help fund their businesses within the last five years, and well over half have used a loan.

funding sources for small business grants

Whether you’re experiencing difficulties finding a qualified grant you qualify for or don’t have time to research what’s available, there are alternatives to small business grants that you can consider:

  • Open a new line of credit: Even if your business doesn’t need a new line of credit immediately, it could still benefit from one. Opening a new line could help you improve your credit score, leading to more loan opportunities down the line and better control of your capital.
  • Small business loans: Nearly half of all small businesses in the United States apply for loans every year. Loans are usually available with online lenders or financial institutions like banks.
  • Equity financing: Equity financing involves selling stock and shares to raise money for the business. It’s a simple yet effective way to raise funds for major short-term or long-term expenses.

Advantages of small business grants

  • You don’t need to repay grants. Grants are an earned type of funding given to your business under the premise you’ll spend it in a certain way. So while you do have to meet specific requirements and go through a lengthy application process to receive a grant, they are essentially a risk-free capital infusion once you’re approved.
  • You don’t have to share your business. With some types of business funding, you need to provide equity to outside stakeholders to increase your capital. For example, if you work directly with an investor, you’ll have to share a stake in your company—which entitles an investor to a percentage of your business’s profits.
  • If you qualify once, you’ll likely be eligible again. Applying for grants is never a simple process, but when you’ve done it once, you automatically become more appealing to other grantors because it shows you’ve done your work and know how to focus on a goal.
  • There are many small business grants out there. Whether you’re looking through government resources or private grants, there are thousands available. In other words, you’ll never come up empty-handed when looking for a business grant that works for you.

Drawbacks of small business grants

  • Grant applications are time-consuming. The fact is that grant applications are no walk in the park: You need to find what grants you qualify best for, provide financial statements, and justify your purpose or intent—all while working against potentially thousands of other small business owners who are working for the same thing.
  • Eligibility requirements are strict. One of the more frustrating aspects of finding a grant is ensuring that you meet all their requirements. Some grants are only accessible to certain businesses, such as minority-owned or veteran-owned businesses. Even if you fit within a certain category, you might also have to align with a specific goal—for example, there’s a grant that only applies to women-owned businesses that impact social or environmental causes. You might not be eligible for a lot of these niche grants.
  • There are contingencies. Unlike donations, you can’t just spend your grant money on whatever you want for your business. Grants come with strings attached, and there are strict rules that you must follow if you’re granted the money. While you work closely with your grant coordinator, you’ll have to ensure you’re spending the money on what the grantors approved.
  • Grants are not always renewed. Receiving grant money is an excellent thing—but you need to be sure you’re spending it the best way possible because you won’t automatically get it again. Therefore, grants are not a steady source of capital in many cases and should not be relied on for ongoing funding.

How to apply for a small business grant

Applying for a small business grant is like applying for financial aid for college:

  1. There are numerous grants and government aid opportunities available, and you need to take the time to sort through them all to find what works best for you.
  2. After that, you also have to go through a detailed questionnaire process so the grantors can consider your application.
  3. Then, finally, comes the interview process, where the grantors will learn more about your goals, purpose, and intentions, allowing them to decide whether they wish to grant your business funding.

image source

#1: Check if you qualify for a small business grant

To be eligible for a small business grant, the applicant typically must fall within one of the following residency statuses:

  • A U.S. citizen
  • A permanent resident
  • An eligible non-citizen

Moreover, you must be running a small business that could benefit from funding, whether for expansion, hiring, equipment, research, or something else. Grants are more often given to minorities, women, veterans, and those living in rural communities without access to city resources.

Don’t forget: Depending on the grants you’re applying for, you might also have to meet specific criteria.

For example, FedEx’s small business grants focus on businesses that forward society. In 2022, one winner’s business introduced diversity and inclusivity to classrooms, while another researched RPM management for those who have diabetes.

#2: Compile your business’s essential financial information

In addition to a detailed business plan along with a project description—which we’ll cover in the next step—you need to have essential up-to-date information on your business’s financials, including:

  • Employee payroll
  • Equipment costs
  • Supplies
  • Travel expenses
  • Any other relevant financial information you may have

Also, be prepared to present your financial statements:

#3: Demonstrate how the grant will help your business

Convincing somebody that you’re worthy of funding is not easy, so this step is often the most challenging for small business owners.

It’s helpful for you to think about this part of the process as similar to pitching your business to investors. Ultimately, to take advantage of funding opportunities, you need to justify the company you’ve worked so hard to build from the ground up.

You invested all that time and energy because you believe in your business and its mission. Now you need to convince stakeholders—whether it’s grant providers or investors—to get on board with your vision.
Therefore, most grant applications will require the same statements you might have used to secure other types of business funding:

  • History of your business
  • Mission and vision statements
  • Project description
  • Cover letter

The good news—you don’t have to do this on your own. There is a specific type of niche writer that helps businesses access grant money: grant writers.

Grant writers specialize in writing business history summaries, mission and vision statements, project descriptions, and cover letters.

To help you with your grant proposal, they’ll learn about your company and why you want a grant. Then, they’ll construct these statements to submit to the grant programs you want to apply for.

Although grant writers cost an average of $20 to $150 an hour (depending on experience), it may be a worthy investment in the long run.

#4: Submit your application once it’s complete

You can apply via the proper platform when you’ve completed all of your financial information and grant writing. If you’re going through the federal website, Grants.gov, you’ll apply for grants directly through the site. If you’re applying for a corporate grant, you’ll apply for the grant through the company’s website.

But before you submit your application, make sure that everything is accurate.

Grant writers are there to help you convey your mission and describe your project, and they should be sure each written piece answers the right questions and is grammatically correct.

Your accountant should also triple-check your statements to ensure that they’re current and contain accurate information.

Types of business grants

Grants come in all forms, but you’ll find the most opportunities from federal government agencies, your local government (either state or county), corporations, and other organizations specializing in educating and funding their communities.

In terms of success rates, applicants in the past have found the most success when applying to these types of business grants:

  • Private foundations (75%)
  • Community foundations (63%)
  • Corporations (52%)
  • State government (42%)
  • Local government (36%)
  • Federal government funding (33%)
  • Other funding sources (13%)

Of course, these numbers don’t imply any hard-and-fast rules: Everybody is different, so be sure to check out all potential grant funding opportunities and narrow down which ones are most aligned with your business’s goals.

Federal Business Grants

Federal business grants come directly from the federal government—but in a variety of ways. For example, these funding resources are allocated by the federal government:

  • Stimulus aid for small businesses if they suffered financial hardships due to the COVID-19 pandemic.
  • The Government Contract Assistance Program (GCAP), which aids small businesses in the bidding processes so they can compete successfully in the marketplace.
  • The Small Business Administration (SBA), which offers the Natural Resource Sales Assistance
  • Program (NRSAP), a program that helps small businesses the same way that the GCAP does but focuses on forest products, royalty oil, minerals, coal, gas, and other natural resources.
  • Other small business grants that the federal government may directly provide.

You can browse federal grants on the official government website, Grants.gov, which offers a database of grant-based funding opportunities and plenty of information on how to qualify and apply.

State and Regional Business Grants

Every state has its own grant opportunities reserved explicitly for small business owners who live or operate a business within that state.

Many states also work together to provide regional grants that may serve business owners in specific areas of the country, such as New England, the Midwest, Mid-Atlantic, Pacific Northwest, Southwest, or Southeast.

If you’re looking for a grant specific to your location, visit your state government website for a list of grants.

Corporate Small Business Grants

Successful corporations started somewhere—and to show their respect and appreciation for small businesses starting or looking to expand, some major corporations have established foundations that provide small business grants.

Corporations may also supply small business grants as part of their corporate social responsibility program—also called a CSR—which allows the company to improve its image and demonstrate its philanthropic efforts to the general public.

Some popular corporate small business grants come from well-known companies, such as The Coca-Cola Foundation and The Walmart Foundation. Meanwhile, grant programs from businesses like Patagonia and Visa focus on grants for businesses operating within a particular niche or created by individuals with a diverse background.

Specialty Small Business Grants

Aside from general business grants that come from the government and corporations, plenty of nonprofit organizations, businesses, and federal programs offer specialty small business grants.

In this context, “specialty” refers to a specific group of business owners who meet certain criteria and may otherwise be at a disadvantage due to their capabilities, sex or gender, race, or legal status.

In an attempt to help spread success across different demographics, there are several funding efforts reserved for veterans, women, immigrants, minorities, and nonprofits. Warrior Rising, which provides veterans with business training and mentorship, alongside access to grants, is just one example of the numerous opportunities available for businesses that qualify under a particular demographic.

Using grants to increase business capital

The entire point of applying for grants is to increase your business capital—so why do you need to know how to do it?

Here’s why: People often prioritize the wrong things and spend their money in ways that aren’t that practical. In fact, many startups end up spending their money on things they could have waited on, such as office spaces, hiring, and advertising.

Although receiving a grant is a well-deserved chance for your business, be wary about how you’re spending it and how you view the funding opportunity.

Grant money should only be used for the intended purpose. With the proper accounting practices and goal assessments, and by not relying on grants as regular funding sources, you can use your grant money to its fullest potential.

Tip #1: Only use the grant for its purpose

Whether or not you work with a grant coordinator, the most important thing after receiving funding is to spend it on the goal you outlined in your request proposal.

There is no reason you should spend the money on anything else—after all, you went through applying for a grant for a specific project. Plus, you want to avoid facing potential grant fraud, which happens when you use your designated grant money on an unapproved part of your business.

An example of grant fraud

You own a small bakery, and you opened your business using a loan from the bank.

After a few months, you realize that the demand from your customers is far greater than what you can supply. Almost every day, your inventory is sold out before it’s closing time. After some thinking, you realize that you need more employees and equipment to increase the rate at which you can bake your goods.

So you apply for a small business grant. In your statement, you explain that you need the money to expand your business by:

  • Upgrading your equipment to make more baked goods.
  • Adding more employees to your payroll so you have more hands on deck during busy hours.

After receiving the grant, you also realize that while you’re paying off some debt, it’s going slower than you’d like. Maybe the interest rate is too high, and it feels like you’re hardly making a dent with every payment.

Although paying debt is an excellent way to increase your capital, you need to be clear about what you plan to spend the grant money on—meaning that you should not use your grant money on anything other than what your purpose statement indicated.

In this example, you should only use the grant money to upgrade equipment and hire new employees.

If you spend the grant money on another aspect of your business, like paying debt, you could face grant fraud, which could put you in an even worse financial position. Depending on the severity of the fraud, you may have to apply for more loans or even file for bankruptcy to pay the grantors back.

Tip #2: Keep track of your grant with good accounting practices

You can have all of the funding you need, but it’s easy to fall off track without good accounting practices.

Your accounting practices encompass all aspects of how your bookkeeper or accounting team tracks, records, and reports all of your relevant financial information.

In a nutshell, good accounting practices include (but are not limited to):

  • Tracking and recording all expenses, even the small ones.
  • Maintaining accurate records that are easy to access and understand.
  • Backing up financial documents, like income statements, balance sheets, and other vital statements.
  • Reviewing your financial status every month to ensure everything is on track.

Of course, doing all this by hand is practically impossible, unless you have a team of experienced accountants.

But even then, everybody makes mistakes—and sometimes the smallest of errors can lead to the most significant problems. That’s why so many businesses rely on automation solutions like expense management software to handle the accounting.

what roles at your organization would be easiest to automate

Tip #3: Evaluate whether you’re meeting your goal

Ultimately, you have to ask yourself: Did the grant do what you wanted it to do? Since receiving and spending your grant money, it’s essential to take a step back and evaluate whether or not grant success is on the horizon.

  • If you applied for a grant to expand on an idea or concept: Did you use the grant money to investigate the idea properly? Are you able to conclude its viability?
  • If you applied for a grant to provide working capital: Is the business up and running? Is it more profitable than it was last quarter?
  • If you applied for a grant to eliminate existing debt: How much do you owe now? Can you successfully pay debts with your grant money amount despite potentially high-interest rates?

Evaluating how much of an impact the grant money had on your business can help you determine how to approach future funding initiatives.

Plus, the information you learn through this analysis can also make your business forecasting more effective, helping you decide what opportunities are the best fit for your business moving forward.

Tip #4: Re-apply for eligible grants—but don’t live off them

Once you’ve been accepted to receive a grant, the odds are pretty good that you’ll be accepted again if you apply to other programs. However, it’s important to remember that business grants are not something you should rely on as a long-term source of funding—and here’s why:

Grant applications are time-consuming

Grant applications require plenty of work.

Each grant you apply to calls for a compilation of specific data requested by the grant commissioners and writing a mission statement, a purpose, and a goal.

Foundation grants take between 15 and 20 hours to complete, while federal grants may take more than 100 hours. Think about how else you could use that time.

For many, it’s not a realistic process to go through every few months or even once a year. Instead, you could shift your priorities to other aspects of your business.

While you might decide to hire a grant writer to save some time, this is another expense that dips into your funds—whether or not you’re awarded grant money.

Don’t spend your money on the wrong things

Receiving money is an uplifting feeling. Once you have plenty of cash in your pocket, it may be tempting to spend it on upgrading your business through things like equipment upgrades, larger spaces, hiring new employees, or increasing your inventory.

These are all essential aspects of a business—but in the grand scheme of things, not necessarily when you’re just getting your feet off the ground.

Be sure that the money you’re applying for will be used to help your business succeed right now.

Grants are not always renewable

You can skip the application process every year and automatically receive funding if you’ve received a renewable grant. In this case, it’s only natural to want to rely on that as a steady source of funding.

However, grantors may change their minds for several reasons:

  • They decide to shift their focus and fund businesses for a different reason or purpose.
  • They decide that they want to offer money to other well-deserving businesses but don’t have enough funds for everybody (meaning recurring businesses).
  • They have evaluated your success and believe you no longer require extra financial support.

Whatever the reason, it’s important not to rely too heavily on grant funding, even if you’re guaranteed funding year after year. Take time to sit down and really assess where your money will go—and what you will do if you don’t get that renewed funding again. Using a grant budget is a great way to allocate money responsibly.

Keep track of your essential statement for grant funding

Business grants can be an important source of funding for your company, but they’re not easy to obtain. Since grant application success rates generally range from 30 to 40%, you want to be sure you’re putting your best foot forward with accurate financial statements, a well-written business plan, and a purposeful grant proposal.

If you’re looking for a helpful resource to keep track of your grant applications, look no further. As expense management software, Divvy is a one-stop platform that securely holds important documents like invoices, receipts, income statements, and everything else you and your team may need for your grant application process. Learn more about Divvy today.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

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