Starting your own business can be exciting and a little scary. Every business requires upfront funding to address startup costs. Each business is different, and the startup costs vary, but it is often one of the largest challenges for first-time business owners. One funding consideration is a startup grant. Grants are a great way to fund upfront costs because you don’t have to repay them, and they require no equity. It’s important to note that they are limited and competitive. This guide will explain the details of startup grants, where to find them, and which ones are worth exploring.
What are startup business grants and how do they work?
Startup business grants are programs that will give new or early-stage businesses money that they do not have to repay. However, each grant has its own rules and restrictions, and they must be followed. While these organizations are giving you money, they are not investing in your business and do not require any equity. Not all grants are cash and may only be open to certain industries.
What is a business startup grant?
Business startup grants are money that is awarded to you as the business owner of a new business. You do not have to pay it back; however, many of them are awarded for a specific purpose. You may find grants that are specifically for equipment, research, or marketing. Grants come from various sources, including foundations, nonprofit organizations, or government agencies.
How startup grants work
Every grant is a little different. They have their own rules for eligibility, which could include your industry, location, and business mission. Some grants may require you to spend the money on specific items like equipment or research. They will require you to report your progress to the funding organization and will outline how you should do that. In many cases, you will have to fill out an application and provide a business plan, as well as outline the problem you are trying to solve. In general, grants have low acceptance rates, which makes them highly competitive. They are often on a first-come, first-served basis and may be reviewed by a committee.
Are startup grants really “free money”?
The money is free in that you don’t have to pay it back. The grant application does require your time, and some applications are lengthy. You will also have to provide documentation. There is no promise you will be selected for the grant, so you may not see a return on the time you spend. Grants are typically focused on innovative businesses, economic development, or entrepreneurship.
Why startup grants are hard to get (and why they exist)
It’s important to understand that most grants for small business startups are interested in solving a problem. They are more concerned with whether this business will solve the problem that they are interested in. They aren’t looking at the business entity or those running the business. They are interested in the mission of the business. A grant is not a type of general funding that looks at business or creditworthiness. Many businesses won’t receive the grants because they don’t meet the target outcomes of the grant.
Grants have limited funds, and there is a higher demand than there is money to meet the need. Even when your business targets the mission of the grant and meets all the criteria, you still may not be awarded the grant simply due to demand. A grant is different from business capital or a business loan. You can use a loan or capital in any way you want for the business.
Grants, while they don’t require any type of repayment, have strict requirements. They can only be used for the intended purpose and must be documented. Some programs are labeled as grants, but are intended to be business accelerators or funding for research and development (R&D). It’s important to understand all the details of any grant for which you apply.
Top small business startup grants to explore
NASE Growth Grant
This grant is for members of the National Association for the Self-Employed. You must be a member in good standing to receive this award. Funds from these grants can be used for startup costs, equipment, or expansion. The awards are competitive and offered throughout the year. They are reviewed on a quarterly basis.
SBIR / STTR Phase I (America’s Seed Fund)
This highly competitive program is run by several federal agencies, and they are focused on research and development. Your business and project must align with the federal research goals. These grants are federal research and development for innovation-driven startups. These are ideal if your business is focused on technology, science, and R&D. If awarded this grant, your business becomes eligible for higher-level grants.
The Awesome Foundation
This micro-grant is awarded monthly by local chapters of the foundation. The micro-grant amount is typically around $1,000. It’s open to very early-stage ideas and unconventional startups. They have a simple application and flexible use of funds with minimal reporting. Many chapters tend to favor projects with community or creative impact.
The Halstead Grant
This startup grant is for emerging jewelry professionals who design wearable jewelry. You must work primarily with silver. The focus of this grant is to help new talent and businesses grow. This grant comes with cash, mentorship, travel, and industry resources. There is also a sense of credibility that comes with obtaining this award. It is well-suited for a creative, jewelry-based startup.
Outta Excuses Small Business Empowerment Grant
This is a quarterly award for small businesses and nonprofits that want to grow and scale. In addition to cash, the award comes with business coaching, eligibility for higher award grants, and access to events. Your annual revenue must be below $500,000 and below $125,000 in the last quarter to qualify for this grant.
Business startup grants for women
Business startup grants for women are different from general startup business grants because they require that the business is majority women-owned, and the founder typically has to self-identify as a woman. Many of these grants prioritize lifestyle businesses, underrepresented women, and first-time business owners. These grants are intended to close the funding gap.
Grants that are focused on women-run businesses typically have fewer applicants and less institutional bias. The grant applications often receive a more holistic review. This usually means there is a higher acceptance rate.
The WomensNet “Startup” Amber Grant
This is one of the most popular and accessible business startup grants for women. This grant is intended for businesses in their early stages, and even before they make any money. This grant is awarded monthly, with the opportunity for a higher grant amount at the end of the year.
Women Founders Grant
This grant is awarded monthly, and it supports women-owned startup businesses. In addition to a cash award, this grant provides education and mentoring. The funds can be used for marketing, operational costs, or early growth. The award amounts and eligibility can change based on the funding cycle.
What to do before applying for small business startup grants
Taking a little time to prepare before you apply for small business startup grants can help increase your chances of being approved. It will save you a lot of time in the long run. Here are some things to do before you hit the apply button:
You want to be sure you are ready to accept a grant. This means having a legally formed and legitimate business. You want to register your business and ensure you have the proper business structure. You should have a clear and definable business purpose. You also want to be able to explain how you will use the money.
When thinking about business structure, you want to understand what it means to form an LLC (Limited Liability Corporation) and decide when that’s best for your startup business. When you form an LLC, it separates your business assets from your personal ones. It allows your business to be a true business entity with banks and grant reviewers. It is usually the best option for small startups, but timing does make a difference. Many grants require the business to be an LLC, so if you’re planning on applying for multiple grants, you may want to strongly consider creating one.
Tips for startup grant applications
Some additional tips to consider before you jump into the grant application process include knowing how you plan to use the funds and being able to explain it. You want to make sure you are applying for grants that match your business industry and stage. You should have a concise business plan and summary ready to use. You should always pay attention to any requirements and deadlines for the grant.
Conclusion
Startup business grants are a great idea for any new business venture. They can help take some of the financial pressure off a new business. You want to be sure that you have realistic expectations and fully understand the details of any grant before you apply. While grants are a wonderful avenue for you to pursue, they shouldn’t be the only source of funding for your business. Be sure to review all your options. It’s best to be prepared before starting a business, especially before beginning the application process, and not to become discouraged. You’ve come up with the business idea. Now, it’s time to go get some funding. You got this!