While it might seem like nothing in this world is free, that isn't necessarily the case when it comes to business grants.
Business grants are essentially free money given to businesses by various sources that doesn't have to be repaid. They can be an ideal solution for businesses in need of additional capital. However, they should only be relied upon as a bonus source of income, not a necessity.
Although the thought of someone giving your small business free money is appealing, the process of applying for and acquiring one is often lengthy and challenging.
If you think a grant may benefit your business, it is important to fully understand who offers them and how to apply for one.
Where to find business grants
While there are numerous options for business grants, they all basically come from one of three sources, according to Priyanka Prakash, a lending and credit expert at Fundera.
Grants can come from the federal or state level, or a local government. These grants have the narrowest eligibility and are usually only provided to businesses rooted in science, technology, agriculture, energy or other industries that will bring direct growth to the community.
These grants primarily focus on specific underrepresented demographics, such as women entrepreneurs, veteran proprietors and business owners of color.
These come from institutions like banks and have the broadest eligibility criteria. These grants are given based on merit and application materials, like essays.
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What to do before applying
Preparation is key when it comes to grant applications. Since applying for a grant is time-consuming, the experts we spoke with said there are a number of steps you should to take to properly prepare for your application and simplify the process.
Define the funding: Amad Ebrahimi, CEO and founder of Merchant Maverick, said business owners should outline the specific funding needed and identify the precise objectives a grant will help them achieve.
- Create a detailed business plan: According to Ebrahimi, the next step is creating a business plan. Your plan should include important details about your business like a company description, business structure, service offered, financial projections and other useful information.
Compile administrative details: Prakash identified important details to compile, such as the business owner contact information, planned use of the grant money, business license number, the business's tax ID (EIN) number, and revenue vs. profit history/projections.
- Gather business records: Ebrahimi said business owners should assemble all the necessary business records, and, ideally, they should be from at least the last three years.
There are several additional steps businesses should take to ensure they are properly prepared:
Get an expert opinion: Ebrahimi said it is helpful for business owners to have business plans and records reviewed by experts, whether that individual is a SCORE mentor or someone with experience guiding business owners through the grant-hunting process.
Hire a grant writer: Grant writers typically have expertise in different grant submission processes and work within industry verticals, according to Ebrahimi.
Achieve nonprofit 501(c)(3) status: David Reischer, CEO of Legal Marketing Pages Corp., said this status is extremely helpful when seeking a nonprofit grant because it identifies your business as a legitimate nonprofit.
- Look for applicable tax-exempt status paperwork: This type of paperwork can sometimes increase your odds of receiving funding, if your business is eligible, Reischer said.
How to apply for a business grant
Once you have gathered the necessary materials, it is time to start the grant application. Ebrahimi said the first step in applying for a grant is to identify what type of grant your specific business is likely to receive.
"Certain kinds of businesses, [like] innovative startups, healthcare-related businesses, women/minority/veteran-owned businesses, rural businesses, and 'green' businesses, in particular, are more likely to qualify for grants than others," Ebrahimi told Business News Daily. "Start with grants specific to your locality, then look into grants offered nationally, whether by a corporate source or by the federal government."
After you have determined what type of grants are achievable for your business, carefully read through the grant requirements and narrow it down to a few select grants. Before writing your proposal, Reischer said it is important to consider meeting with the funding source.
"Sometimes, it is possible to set up a meeting with a foundation staff person to explore your idea before writing or delivering a proposal," said Reischer. "If [you] cannot get a person-to-person meeting, then maybe try to at least get guidance over the telephone."
After conducting research and contacting the funder, the next step is to write the grant proposal. This part is critical and deserves a lot of attention. Reischer said the purpose of your proposal is to demonstrate your worth.
"The proposal in the grant should present a logical solution to a problem," said Reischer. "It is always necessary to convince the funder that you know what you are doing. Make sure to tell the story of your nonprofit in the budget and the proposal narrative."
Prakash agreed that it is critical to make a compelling case as to why you should receive the grant and what it will be used for.
"Judges want to give grants to businesses that will benefit the most," Prakash said.
Once you've written and submitted your grant, the last thing to do is wait. Check the grant submission guidelines to see their approval/rejection process, as sometimes this will provide a timeframe or a series of next steps for you to take. Some funders provide a tracking number, so you can see the progress of your grant proposal.
You will typically be notified when your proposal is pending and when your proposal is approved or rejected. If you aren't able to find submission guidelines or tracking information, wait at least three to six months before following up.
Common application mistakes
While knowing what to do when applying for a grant is critical, knowing what not to do is equally important.
Avoid falling prey to common application mistakes. Nicolas Straut, business grant lead at Fundera, said a seemingly innocent but very common mistake is overapplying. When business owners apply for too many grants at one time, they decrease their chances of getting one due to reduced time and quality spent on each application.
"There is a wide market of business grants available, and you should explore as many you can before selecting one or two you have a high chance of acquiring," said Straut. "You're very busy as a small business owner, and it's essential you use your time tactfully to acquire funding for your business without spreading yourself too thin."
According to Ebrahimi, many business owners make the mistake of being too general or unoriginal in their proposal. They describe their mission statement in general terms, as opposed to listing specific solutions as to how they can satisfy the funder's interests.
"Describe how you can meet the funder's needs in a unique way so your proposal doesn't read like a cut-and-paste job," Ebrahimi said. "Additionally, consult your business manager when putting together your grant proposal to make sure your budget is realistic. Grant funders are good at spotting unrealistic budgets."
Reischer said a common mistake among business owners is not following directions. Grant suppliers are looking for a very specific set of criteria, so following directions is an absolute must.
"If the guidelines say they want two pages, then do not write three," said Reischer. "If the guidelines give a date for submission, then get the submission in on time. Every detail in a submission must be perfect."
After you receive the grant
Occasionally you may find a grant that comes with no strings attached, but this is uncommon. Once you receive a grant, you are accountable for following the guidelines set forth by the grant provider.
"Different grant issuers will have different expectations of grantees, but one thing most funders have in common is that they expect periodic reports from the business owner regarding the progress of the project in question," said Ebrahimi. "You may well be required to meet performance goals, so be prepared to do so."
The requirements for maintaining a grant are something you should be aware of ahead of time, although they are usually not too difficult. Once you establish an agreement between the grant funder and yourself, you are ready to move forward with your business or project.