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  • Writer's pictureSBDC @ JCC

Myths of Grant Funding

One of the first questions asked when I meet with a client, invariably, is “Are there any grants available to help me start my business?” Late night television infomercials offer guides, tips, and secrets to getting the government to fund your business FOR FREE! Unfortunately, the truth is that grant funding to start a small business is more fiction than fact. While researching this blog, I came across two very good articles, which I have shared excerpts from, along with the links to read.

"The Federal Grant Myth vs. Reality Unfortunately, cash grants for businesses are rare. They are awarded to highly specialized types of businesses, as is the case with the National Science Foundation’s Grants for Small Business Innovation Research / Small Business Technology Transfer programs. The National Science Foundation awards nearly $190 million annually to startups and small businesses whose scientific discoveries lead to innovative products and services with meaningful commercial and social impacts. This grant funding is available for either proof-of-concept/ feasibility and/ or development phases of your startup. If you are interested in learning more information about this type of grant funding, or if you want to see if your startup qualifies for this type of capital, visit the National Science Foundation’s website for these two programs.”

Therefore, while Federal monies for startups are rare, if you have a small business focused on research and innovation, there is a possibility of finding monies to assist you. However, if you are merely looking for money to help get your widget retail store up and running, you are more likely going to be moving in the direction of a small business loan than federal grant monies.

“First let’s dispel the myth that government grants are available to business owners. If you are a for-profit business, then you do not qualify for a government grant. This article on – “The Truth About Grants” – provides the official word on government grants, from the government.

Essentially, “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.”

However, the government does provide grants to “…nonprofits, educational institutions, (and) associations … but rarely are these available to small businesses, and they are never available to cover startup costs, debt and operating expenses.”

The inherent risk of starting a business makes grant funding a difficult prospect at best and a near impossibility at worst. Lenders require small business owners to invest their own equity and share in the risk of a new business. If a small business fails, the loan can still potentially be recovered or written off, but a grant can be difficult to recover, hence, the reluctance for organizations/entities to provide grant funding for startups. The truth of the matter is, starting a business is not an easy task, and something given freely is not always utilized to maximum benefit. When we work hard for results, we tend to be more appreciative of everything that got us to that point. We do not take things for granted, because we know we are responsible for them. Loans have to be repaid, failure should not be considered an option and when we have our own skin in the game, we tend to focus more effort on succeeding. I have never met anyone that thought it was ok to throw away money, especially their own, on a venture. Going into business involves making a calculated risk. Lenders take that same risk when providing small business loans. Grantors cannot afford to take such a risk otherwise the sources of their grant monies will dry up.

Ultimately, if you are looking to start a business, do not look for the “freebie.” Instead, focus on building your equity, maintaining strong credit, and putting together a solid business plan with strong financial projections so that your chances of receiving a business loan are much better. Look at the scope of your business and decide how best to scale it to start so that you do not have to go into steep debt or can finance it yourself. Take steps to put yourself in the best possible position to not only gain funding, but also have the ability to repay it.

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