30/05/2024

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What Is a Business Grant?

What Is a Business Grant?

A business grant is a sum of money given to a business by a donor. In the U.S., the largest donors are the federal government, state governments, foundations, charities, and corporations. Business grants are usually given to businesses to achieve specific goals or to businesses that are owned or run by members of an under-represented community.

Business grants are different from business loans in one key way: You don’t have to pay them back.

Key Takeaways

  • Business grants offer many advantages over other types of business financing. Unlike a business loan, for example, a grant does not have to be paid back. 
  • Business grants are provided by various levels of government—federal, state, and local—and a wide variety of private charities, foundations, and corporations.
  • Business grants are typically designed to support specific activities or specific types of business. 
  • It can be difficult to qualify for and secure a business grant, as the application process can be highly competitive.

What Is a Business Grant?

Business grant programs are run by donors—including federal and state governments—to support businesses. Businesses can apply for grants from governments, corporations, foundations, or trusts, and if they are successful they will receive a sum of money. 

The crucial difference between a business grant and many other types of business financing, including business loans, is that grants don’t have to be repaid. If a business receives a grant, it might have to report back to the donor on how it used the grant, or how it has supported the business, but the money itself can be kept.

Most business grants are designed to achieve a specific purpose. This can be to promote a particular type of business, a specific type of business activity, or to support people from communities that are under-represented in the world of business. For example, there is a wide range of grants available for research and development companies—businesses that work in highly technical fields—or businesses owned and run by women or minorities.

This means that the “average” company can find it difficult to qualify for a business grant. Even if your business does qualify, business grants are often highly competitive, so it can be quite difficult to actually get funding.

How Business Grants Work

In general, the following steps are involved in securing a business grant:

  1. A business owner or employee identifies a grant that their business is eligible for, and submits an application for it.
  2. The donor organization will assess the application and decide whether the applicant qualifies for the grant.
  3. If an application is successful, grant money is then paid to the business by the donor.
  4. The business is often required to use this grant money for a specific purpose, but is not required to repay the donor.
  5. Typically, the donor organization will ask the business to report on how they’ve used the grant.

Types of Business Grants

There are many different types of business grants. Some are administered by federal or state governments, some are focused on supporting certain types of business owner, and some are focused on businesses that operate in a particular field or geographical location. 

Government business grants

Government business grants are offered by three levels of government: federal, state, and local.

  • Most federal business grant programs are administered by agencies of the federal government (such as the Department of Agriculture) and are designed to achieve the agency’s specific objectives. These are generally the largest grants that companies can qualify for, but they are also the most competitive. 
  • State and local business grants are usually smaller than federal grants, but are typically easier to secure because they are less competitive. Sometimes, state governments administer federal business grants and tailor their grants process to fit local priorities or objectives. 

Grants for minorities, veterans, and women

There are also lots of business grants available for certain types of business owners. These include:

  • Grants for veterans. The federal government has occasionally offered grants for business owners who are veterans. However, these programs don’t run continuously, and so aren’t available on an ongoing basis. That said, veterans are able to access preferential business loan rates from the VA to finance a business.
  • Grants for women. If your business is female-owned or -run, you may have access to a wide range of governmental and private grants. The federal government offers grants to support this kind of business, as do a large number of private foundations, charities, and corporations.
  • Grants for minorities. Similarly, a federal agency, the Minority Business Development Agency, supports businesses run or owned by Blacks and minorities to access grants and investment opportunities. Lots of local and city-level foundations also provide financial support.

Advantages and Disadvantages of Business Grants

If your business qualifies for a business grant, it almost always makes sense to apply for one. However, business grants have advantages and disadvantages in comparison to other forms of business financing. Here’s a look at both.

Advantages

  • The primary advantage of a business grant (over, say, a business loan) is that you don’t have to pay it back. Applying for a business grant also won’t affect your ability to apply for other forms of funding or financing, so it’s possible to receive both a grant and take out a business loan at the same time.
  • Business grants can be helpful for businesses run by women or minorities. Both groups face structural barriers when it comes to accessing other forms of business financing, including loans, so grants are often crucial to their ongoing success.
  • Business grants are also useful for capital-intensive businesses that don’t expect to make profits in the short term. Businesses that are focused on developing new technologies, for example, might need to rely on business grants for the period it takes to bring a profitable product to market.

Disadvantages

  • Business grants can be fairly inflexible in comparison to business loans. Most donors require businesses to spend their grant in a specific way, and to confirm that they have done so. If your business priorities or market conditions change, this can mean that you are unable to use your grant.
  • The amount of money a business grant provides is usually smaller than a typical business loan. This is especially true for business grants given out by local government or private foundations. 

Requirements for Business Grants

There are many different types of business grants, each focused on a different objective and each with its own specific requirements. This makes listing the “average” requirements for a business grant difficult, and points to the need to read grant applications carefully.

However, most applications for a business grant will require:

  • A well-developed business plan. This should outline the current status of your business, prove that it is stable and well-run, and outline your objectives for the future. 
  • An indicative budget. Most grant applications will require you to outline your current business budget, and indicate how the business grant you are applying for will fit in. 
  • A justification for the grant. During the application process, most donors will ask you to explain why you need the grant you are applying for, and how it will support or develop your business.

How to Apply

There are, broadly, five steps involved in applying for a business grant.

1. Find a grant

This is likely to be the most time-consuming part of the process. In order to find a grant that is both suitable for your business and that you are able to apply for, you might have to search quite widely:

  • For federal government business grants there is a central database: grants.gov. This website will allow you to search for a federal grant against a number of criteria.
  • For state and local government grants there is no comparable system. To find these grants, you’ll have to search the websites of your state and local government. Some states, however, offer consultation services for businesses, and these can point you in the right direction.
  • Similarly, there is no central database for business grants offered by corporations, charities, or foundations. These grants are generally announced and advertised via the websites of the corporations that offer them, so you’ll have to do some research to find them. Since many of these grants are focused on a specific industry, a good place to start is to search online for grants offered in your sector: You can search for “grants for manufacturing companies,” for example, or “grants for technology companies.”

2. Check your eligibility

Once you’ve found a suitable grant, you should carefully check whether your business is eligible. Most grants have very specific eligibility requirements, and you don’t want to waste time applying for a grant for which your business won’t qualify.

Many grants, for example, are only available for businesses that have been operating for a specific number of years or those that have an annual turnover that is below a certain dollar amount. Read the eligibility guidelines for any grant before starting your application and, if possible, contact the donor organization to double-check that you are eligible.

3. Register

You will need to register an account on grants.gov in order to be able to apply for federal grants. For other types of grant, you might be able to skip this step.

4. Apply

You can apply for federal business grants directly through the grants.gov website. For other types of grants, the application process varies a lot. Typically, you will be able to apply for a business grant online, although some donors still require a paper form. In either case, however, the grant application documents will indicate how you should fill out the forms, and what additional documentation you need to supply.

5. Track your application

If you are applying for a federal grant, the grants.gov website will allow you to track the progress of your application and check on the decision once the time comes. For other types of grant, it’s often necessary to call or email the donor organization to get an update on your application.

What Is the Difference Between a Grant and a Business Loan?

You don’t have to pay back a business grant, but you do have to pay back a business loan. Business grants are often less flexible than business loans, however, generally because you have to use them for a specific purpose.

What Is the Benefit of Receiving a Grant to Fund Your Business?

A business grant can support a business to carry out a specific activity or provide support to a business that might find it hard to access a business loan.

What Is the Most Popular Business Grant?

The Small Business Administration (SBA) offers a variety of grant programs to support small businesses. The most popular federal grant program is the Small Business Innovation Research (SBIR) program, which provides funding for research and development projects.

The Bottom Line

The main advantages of a business grant over other types of business financing is that it doesn’t have to be paid back. Business grants are provided by various levels of government—federal, state, and local—and are typically designed for specific activities or types of businesses. It can be difficult to qualify for and secure one, as the application process can be highly competitive, but for many businesses, a business grant represents a great opportunity for growth and development.