Kabbage Blog

Looking for more resources? The Kabbage Greenhouse brings together all the best advice, trends and information for small businesses.

Looking for more business resources? Check out the Kabbage Greenhouse.

Check it out
Visit Us

Finance & Accounting, Financial Management

Small Business Grants: The Pros and Cons

Small Business Grants

If you’re like any other small or online business owner, free money is music to your ears. But small business grants, which are basically free money, have their advantages and disadvantages. There are many things to consider when pursuing this type of funding for your business. Also, it is important to note that grants for small business can be supplemental to any other traditional method of funding a business, such as a loan, microloan, or line of credit.

What is a Small Business Grant?

A grant is money that is given to a person, business or corporation from federal, state, county or local governments, or private businesses or corporations. Grants do not require repayment of any kind. It is most definitely an attractive financial consideration for entrepreneurs and small or online businesses with little cash available for start-up, growth or expansion. There are grants available for all kinds of small and online business owners: women, veterans, disabled Americans, minorities, and other under-represented groups. The key is finding the grants for which you qualify and then doing the nose-to-the-grindstone work to apply for the small business grant.

How to Get Grants for a Small Business

Research, research, research! There are tons of grants out there for the asking, but you need to do your research. Most grants have very stringent requirements that must be met (i.e. woman-owned business with fewer than 25 employees, with a tie to local environmental conservation efforts.) If you do your research, you will find thousands of grants up for grabs. However, you must make sure your small or online business meets their oftentimes strict eligibility requirements.

One thing to note is that tech companies have a slight advantage when it comes to grants. States and the federal government offer grants through the federal government’s Small Business Innovation Research and also through the Small Business Technology Transfer programs. For more information on either of these two programs, visit www.sbir.gov or www.sba.gov. Also, businesses that are issued government grants are often asked to repay the government in other ways other than with money. For instance, if the company is doing research and development, the government may require that findings from any research using grant money be made available for use by local, state or federal government authorities.

The Top Three Places to Look for Small Business Grants

1.       First, visit the Small Business Administration website at www.sba.gov. Here you will find a loans and grants search tool that can connect you to the many grants available and for which you might qualify.

2.       Next, you can go to the federal website, www.grants.gov, and search for available government grants. Again, there are many but you will want to check the eligibility requirements before pursuing any.

3.       Finally, you may also want to check your state’s official web page and search for grants. Many states offer grants to small or online businesses that contribute to job growth and the state’s prosperity.

*Note: if your small or online business is involved in any kind of research and development, you may want to consider a research and development grant. According to the www.sba.gov website, “If your small business is involved in scientific research and development (R&D), you may qualify for federal grants under the Small Business Innovation Research (SBIR) program. SBIR is a federal program, coordinated by the SBA that awards grants and contracts to small businesses engaged in research and development. The grants fund the R&D necessary to develop innovative technological products that can be brought to market. You can read more about how the SBIR program works, eligibility requirements, and how to apply for a grant in here.

The Pros and Cons of Small Business Grants

Pros of Small Business Grants

Well certainly the number one “pro” when using small business grants is that grants are essentially free money. Grants do not need to be repaid. This is welcome news for many small and online businesses that may be cash-strapped and unable to repay a traditional loan.

Another “pro” is that information about the availability of small business grants is quite easy to find online. There are a number of free resources online that can point you in the direction of the many grants that are available.

Cons of Small Business Grants

Unfortunately, the “cons somewhat outweigh the “pros” when it comes to using small business grants. In no particular order, here they are:

1. They are Time-Consuming

Because federal, state and local grants are free money, there are many hidden “costs” associated with them. And your time is one of them. There is generally an inordinate amount of paperwork that needs to be completed when applying for a grant. But in addition to the application, you and your small or online business will also have to provide additional documentation. Things such as demographics of your market, your product or service and your specific reasons for applying for the grant.

2. You Need to Justify Purpose

In your application, you will be required to show specifically and with great attention to detail how you will use the grant funds, should they be awarded to you. This may involve charts, graphs, budget numbers, market demographics, and projection sheets that will paint a picture of your intentions. This is time-consuming and often requires many hours of research, planning and organizing. Since grants are essentially free money, the issuer (federal government, state or local agencies) will often have hidden strings. How will you use the grant money to help your community, your state, etc.? What specifically will the funds be used for? You may need to show how your small or online business will use the grant money to benefit the society at large.

3. Sometimes You Have to Play the Waiting Game

After all the time you spend on the application process, be prepared to wait even longer for the response. It takes weeks and sometimes months to find out if you’ve been approved or not for a small business grant. This can be very frustrating, especially if you, as the small or online business owner, is in need of the funds in a faster turnaround time.

4. You Must Be Prepared for Tough Competition

There are hundreds of thousands of small and online businesses out there trying to score free money just like you. Which means the competition can be fierce. Know the strengths of your business and do some research on the types of grants for which you may qualify. This will help position you and your business well during the application process.

5. Eligibility is Strict

Again, when using small business grants, know that there are very strict eligibility requirements. Believe it or not, this could work in your favor. Many business owners do not have the time to do the mounds of paperwork required for one grant application. And they probably do not have the funds available to hire someone to be fully dedicated to the grant-writing process. That said, be sure you meet the eligibility requirements before going forward. And if the grant is a lucrative one, some businesses have been known to adjust their business plan, product or service to meet certain eligibility requirements.

6. You Need to Look Over Your Shoulder

This can be perceived as either a pro or a con, depending on how you look at it. But basically, once you’re approved for a grant, you may be subject to having someone check in on the progress of your business relative to the small business grants. Expect monthly or quarterly “check ins” whereby you as the small or online business owner would be required to provide proof of such things as marketing efforts, publicity with local or regional news media, other forms of advertising, steps toward goals as outlined in the grant, etc.

7. There are Strings Attached

State and local programs will sometimes offer business grants, however, they will often have some kind of contingency. For instance, a grant may be awarded with the contingency that the recipients get matching funds or a loan to supplement the grant. This can mean additional work on your part. This is something you will seriously want to consider – it is a huge investment of time.

8. There are Strict Rules When it Comes to Federal Grants

Federal and state grants are funded with taxpayer dollars and thus have very stringent terms. Unlike traditional loans, grants for small business are not issued for starting a business, paying off debt, covering basic operating expenses, etc. There are fairly strict rules and regulations for the issuance of kinds of grants.

Alternatives to Small Business Grants

Another option instead of small business grants is to consider a line of credit or small business loans. Whether for a start-up company or an existing company with a proven record, lines of credit are available to you at any time but have a maximum limit of money that you can take.

If you do not have the time to spend on the grant-writing process, consider taking out a business loan instead as an additional source of funding for your business. Loans or lines of credit from nontraditional online lenders such as Kabbage can go a long way toward making your small or online business plans become reality.

Traditional lenders of small business loans include the brick and mortar bank buildings you can see on virtually every street corner in America. In fact, when you think about small business loans, personal banking, mortgages and the like, banks are usually the first things that come to mind. But don’t disregard the alternative lenders, such as Kabbage, as well.

 

Want to learn more about the Kabbage process? Check out these helpful links: