Many individuals are looking for grants or “free money” to start their business. They may have read or heard that free money for business owners exists, and how easy it is to get hold of these monies. Some have read ads, in print or on the Web, offering them information as to where to get free grants. With these ads making it look like there is money out there for the taking, who wouldn’t dream to get a part of it?
But, is there really free money out there for small and home-based businesses? The answer is “Yes” and “No.”
Can Your Business Get Grants?
There are hundreds of millions of dollars in grant funding available free to entrepreneurs and small business owners. These grant monies come from the government, non-governmental organizations, and private institutions. The grant amount ranges from $5,000 up to some in the six figures. Best of all, absolutely none of them requires a pay back.
You, too may have seen or read advertising in this regard. However, the myth of “free money” intended for starting or expanding a small business needs to be dispelled.
Most funding institutions do not provide grants or “free money” for starting or developing a business. The Small Business Administration, Department of Agriculture, Pepsi Foundation, and other grant funding sources do not give capital to start a day care, handyman business or clothing design business, etc. Nor do they provide grants to individuals who will use the proceeds to start their own “for profit” small business.
The SBA explains this clearly:
The federal government does NOT provide grants for starting and expanding a business.
Government grants are funded by your tax dollars and therefore require very stringent compliance and reporting measures to ensure the money is well spent. As you can imagine, grants are not given away indiscriminately.
Grants from the federal government are only available to non-commercial organizations, such as non-profits and educational institutions in areas such as, medicine, education, scientific research and technology development. The federal government also provides grants to state and local governments to assist them with economic development.
Take for example grants for starting a day care business. In Virginia, the state government offers a Child Care Financing Program. However, it is a loan program and not grants, and only those business with existing licenses in good standing are eligible to apply. Startups with no licenses yet are not qualified to apply. Maryland has a Family Daycare Provider Grant Program, which reimburses up to $500 to registered child care providers in expenses to achieve or maintain compliance with family child care regulations.
Rather, grants given by funding organizations generally target their assistance towards specific groups, types of organizations or activities. The grants provided by SBA are normally given to nonprofits or educational institutions. This is the same for private foundations that award grants.
Private foundations are strict with their awarding of grants, and most only provide grants to non profits or 501C3 organizations. The Bank of America Foundation considers charitable requests from nonprofit organizations in geographic areas where the company has a business presence. These funding institutions provide funds mostly in a “project” context, consistent with their organization’s goals and objectives. The Packard Foundation awards grants only for
“charitable, educational, or scientific purposes, primarily from tax-exempt, charitable organizations. We do not provide funding for projects that benefit specific individuals or that serve religious purposes.”
Many of the grants available to for-profit businesses are for existing business, not for starting the business. Organic farming is one area where there are a number of grant programs available to for-profit businesses, but most of these grants are geared towards existing organic farms, and rarely for starting an organic farm. These grant funds typically focuses on funding research or education/outreach projects on agricultural production and policy-related topic of concern to organic farmers or ranchers. Some grants provide funding for crop breeding and organic seed quality.
More often, the use of the grant proceeds must be consistent with the objectives of the funding institution. Since most grants are project-based, many funding organizations require that the applicant provide counterpart funding. Grants may cover only a fraction of the project cost; very rarely do grants cover 100% of the total cost.
Take for example the Indian Grant Program given by the Bureau of Indian Affairs. This program gives up to $100,000 to American Indian individuals. However, the grant stipulates that the funds must be used for “development of profit-oriented businesses that will have positive economic impact on Indian Reservation.” Furthermore, the grant must be no more than 25 percent of project costs – meaning that the individual must provide 75 percent counterpart money for the project.
Be Wary of Grant Scams
Looking for grant money is a difficult process; with the process made more confusing by the abundance of myths and scams in searching for free money. After all, what’s not to love about the notion of “free money”?
Of course, everyone wants to have free money — and therein lies the danger. Many entrepreneurs have been lured by ads and websites promising information on how to get grants. As a result, many gets victimized by scammers.
The Federal Trade Commission has posted a warning about paying for government grants:
Don’t pay any money for a “free” government grant. If you have to pay money to claim a “free” government grant, it isn’t really free. A real government agency won’t ask you to pay a processing fee for a grant that you have already been awarded — or to pay for a list of grant-making institutions. The names of agencies and foundations that award grants are available for free at any public library or on the Internet. The only official access point for all federal grant-making agencies is www.grants.gov.
The government has been running after grant scammers. In fact, FTC in 2011 won a $29.8 million judgment against a bogus company that promises information on government grants, claiming that government grants were available quickly and easily for personal needs. However, it is up to you to watch out for about these grant scams. Here are other tips to follow:
- Be very wary of anyone who promises or guarantees they can get you a grant or a loan, particularly if you must pay in advance for the service.
- If you are tempted to respond to one of these offers because of a money-back guarantee, be aware that they may impose so many conditions it could be difficult to ever get your money back.
- If you are experiencing financial problems and believe you may qualify for some kind of aid, check with your city or state unemployment or social assistance office.
- Check the Better Business Bureau for complaints about a company before sending money.
- Advertising in recognized media outlets or on the Internet does not guarantee the legitimacy of the company behind the ad.
Remember the saying: if it’s too good to be true, it probably is!
Resources on Grants
Entrepreneurs and would-be business owners seeking grant funding for a project can check out the following online databases. Note that some of the sites are free, while others require subscription.
- Grants.gov – the U.S. Government’s main web site about government grants.
- SBA Loans and Grants Search Tool – note that most of the search results are for loan programs
- Catalog of Federal Domestic Assistance – an easy-to-use database of all grants and assistance provided by the United States federal government. You can search by functional area, by agency, by keywords, etc. Use of the site is free.
- Foundation Center – paid subscription, and also offers Foundation Grants to Individuals Online
Original Publication Date: August 2001
Category: Finance a Business