Grants versus Loans
When starting a new small business, funding is one of the most important elements. It’s imperative to know the difference between grants and loans. The primary difference is that a loan needs to be repaid, whereas a grant does not.
Keep in mind that any small business loan that you acquire must be used for start-up costs. A small business grant is generally given to a small business indirectly through the federal government with the understanding that the business is there to assist a community.
Small Business Grants
Most small business grants are through the federal government, not directly but indirectly through organizations that support certain industries. There are also grants available through local government, either at the city or state level.
Corporate grants as available but are harder to locate. This is all contingent upon the location, the industry, and how the new business will help the community.
Grants are typically given so that small businesses can bring more attention to an industry. If the new business will provide representation and assistance, it is more probable that one would qualify for a grant.
While it’s true that grants do not need to be paid back, it is also a fact that grants are not just given to anyone or any small business. It is an application process and the application will determine the eligibility. It is based on specific conditions that the potential new small business owner must present to the grantor, indicating that the funds are necessary to get the business up and running.
Grantors require applicants to show their need for funding the small business. In most situations, the conditions include itemizing and accounting how every dollar is spent. There can be additional requirements, depending on which organization is potentially providing funding.
If you qualify for a small business grant, and you expect the funding to continue from the grantor, then they will ask you to provide continual accounting records, as well as potential future projections of the business plan.
If the small business, once it is operational, is not doing well, then the grantor has the right to withdrawal future funding. All of the details are drawn up with each specific grant agreement.
Searching for Grants
There are websites that list federal grants for certain industries and organizations. They have a variety of grants depending on specific interests that the government supplies assistance for; including energy, defense, science, education, transportation and more.
Thoroughly search through the lists of grants to see which one(s) your business qualifies. Within those categories, there are more specific grants listed. Enter the type of grant into the search engine to help narrow down the options. Examine the requirements needed and apply.
Keep in mind that it is a good idea to apply for several grants that you qualify for because funding is limited and the money is disbursed promptly.
Types of Small Business Grants to Pursue:
- Local – If the location of your small business is in a small town or village, there might be many opportunities in the vicinity. It is a good idea to see if there are any grants available through the local town government that fit your small business needs.
- City – Cities will often support their residents with small business grants if there is a need for it in the area, especially if that business can benefit the community. Keep in mind, that the larger the city, the more opportunities are available.
- State – By researching the state government’s website, you might be able to locate grants within your district. The advantage of state grants is that it benefits all parties involved. It sees a potential market to create jobs, which, in turn, increases tax revenues. All sides involved are supported in aiding the community. Don’t forget; only apply for grants in your district.
- Federal – While the federal government doesn’t directly offer small business loans, they do indirectly by funding organizations and certain industries such as education programs, energy, science, transportation and more. The grants on the federal lists are available online with detailed explanations of eligibility requirements.
- Corporate – This takes a bit more research, but you can find that most major corporations have grants and other financial assistance opportunities for small businesses that want to help the community. It can benefit you to check with the local corporations first, and then spread your search radius from there.
- Internet – There are a significant amount of benefits to searching for grants on the internet. It’s as simple as typing keywords into a search engine. The other bonus is that the speed of current and up-to-date information is provided through this technology and can assist you in finding potential funding for your small business.
- Networking – If you get a chance to attend a local business function, it helps to introduce yourself to the people you meet. Networking helps by allowing you to get suggestions, ideas, references, and recommendations for potential opportunities in business. With each new individual that you meet, you are expanding your network and knowledge base. It is essential to meet professionals in several different industries, as this might open doors for you down the road.
- Library – This is a vital and sometimes under-utilized resource. The library holds so much information through reference material, books, and on the computer as well. The reference librarian is someone who knows how to find the specific tools to help you with your research.
Searching for Loans
First things first, your business plan should already be in place before you begin searching for loans. This is essential for when you find one that fits your small business needs. Make sure you qualify for the loan before submitting it. In your loan application, include a description of the proposed business, the nature of the business, how you qualify, financial projections and estimates of how the money will be spent.
Attention to Detail
- It is crucial to always make sure that you meet the criteria for the grant/loan before submitting documentation for the application.
- Always provide several different types of current contact information.
- Some information may need to be verified through other members of your business. If this is the case, remember to include, in detail, exactly who should be contacted for any questions.
- Be prepared to send additional documents per request of the grantors /bank.
- Many applications for grants/loans involve an essay, elaborating on your small business proposal. Be sure to indicate the necessity of how the business will benefit through either type of funding.
- Remember who your competition is, as this may be a vital indicator on the need of your small business in your chosen location. Some grants/loans will deny the application if there are too many competitors in the same location.
- Explain your research in your essay portion of the application.
- Pay close attention to any and all details when submitting the grant/loan application.
Online Applications for Small Business Grants
More than likely, the federal grants for organizations and certain industries involve submitting your application online. Due to the nature of online interactions, most of your communicating will be through email. There will be confirmation of submission, and updates as the application is processed.
Note: This will take some time as the application process can be slow due to many reasons such as excessive pending applications, the grantor waiting on missing components of an application, the grantor waiting on a response from a background check, etc.
If you are approved for the grant/loan, you will be contacted with all the information from the individual grant/loan provider. This information will comprise of how the grant/loan will arrive, the date, and any additional material that is in the grant/loan agreement.
Don’t Give Up
If you were denied the grant/loan, it’s okay. Don’t give up. Even if you are having trouble locating a grant/loan that is right for your small business, keep trying. There are so many types out there, and most are very specific in their requirements for eligibility.
Small business grants can help increase the quality of a growing small business which in turn, can help the local community. It will take time and effort to search for the best grant that fits your needs. This process can be tedious, and it takes a lot of heart and commitment to reach the end goal of having funding for your small business.
Don’t be discouraged by the face of rejection. Just remember that there are others out there, in the same situation as you. They are also seeking assistance for their small businesses. Don’t give up, keep trying and you’ll be able to succeed.