The Truth About Government Grants

"Where can I get a small business grant?" is the single most common request asked by small business owners.And the answer is probably the single most frustrating one an entrepreneur hears, but here it goes, because it is worth repeating:

Federal and state government agencies do not provide grants for starting a business, paying off debt, or to cover operating expenses. Government agencies do not provide "special" grants for women, minorities, veterans or disabled entrepreneurs. The Federal government also does not provide grants to small business owners as part of the Recovery Act.

Why are people asking for a small business grant if none exist?

Because there are lots of people telling you these grants exist in order to sell you something. As my colleague wrote a few months ago, any one who promises you that you can obtain a small business grant from the government by subscribing to a book, CD or website, is scamming you. Save your money.

Doesn’t SBA give out grants?

SBA does not provide grants to small businesses. In fact, SBA does not lend money. SBA provides a guaranty on loans made through commercial lenders. This guaranty means that the SBA assumes a percentage of the financial risk if a borrower defaults on the loan. Commercial lenders are inclined to provide SBA backed loans to small business owners who otherwise would not qualify for traditional loan programs.

But the government does give out grants, right?

Yes, but these grants are generally only available to non-profits, educational institutions, associations and state and local government agencies. Government grants cover a wide range of activities, from agriculture production to zoological research.

Eligibility for a grant varies according to its purpose and use. For profit businesses may be eligible for some grants, but rarely are these available to small businesses, and they are never available to cover start up costs, debt and operating expenses.

For example, the U.S. Forest Service provides grants that aid forest restoration activities. As you can see from grant announcements, a number of organizations are eligible, including for-profit organizations, except for small businesses.

If you are small technology company, there is a Federal grant program for you. The Federal government's SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs award a specific percentage of Federal R&D funds to qualified small businesses. SBIR/STTR programs encourage small firms to undertake scientific research that helps the government meet it’s R&D objectives, and that have a good chance of being commercialized.

Grants are not “free money”While there may be some truth to the popular perception that “grants are money don’t have to pay back,” grant money must be used for a very specific purpose, and conditions that directly benefit the organization making the grant.

For example, one of the few small business grants I found is the Vermont Technical Assistance Grant. Its purpose is to provide funding to help existing technology businesses develop new products, and provides very specific conditions on how the money should be spent.

Likewise, the State of Nebraska provides grants to child care businesses for making improvements to their facilities. Small and home-based business are eligible, but the terms are specific.

Grants in a Nutshell

So, here’s the truth about government grants in nutshell:

There are no government grants for starting a business, paying debt or covering operating expenses. For these funding needs, you should seek a small business loan.
If you are eligible for government grant, you should be aware of specific terms and conditions of the proceeds. Grants are not "free money" and often the government expects some return on its investment: either indirectly through improvement in regional economies; or directly through the development of technology the government can use in its programs and services.

Locating Grant Announcements

There are two primary resources for seeking information on available grants:
The Business Loans & Grants Search tool provides a listing for government-backed and select private sector financing programs available to small business owners, including grants, when available.

Grants.gov is the one-stop resource for locating grants made for Federal agencies. Grants.gov includes grants available to for-profit organizations (except for small businesses).

The Catalog of Federal Domestic Assistance (CFDA) lists thousands for Federal government programs and services that provide financial and non-financial support to American citizens.

This article appeared on Business.gov on June 12, 2009
For general information, visit Business.gov’s Guide to Government Grants.