Despite the infomercials claiming free government money is available for you to start a business, "Don't believe the hype," says the U.S. government's Grants.gov website. Although the government awards thousands of grants annually, most are for research or specific purposes and few are available to individuals or to for-profit businesses. Grants.gov states that the chances of receiving such grants are "highly unlikely" and that there are "none at all" for direct personal assistance.
Understanding Why Grantors Award Grants
So can an individual find grant money to start a business? The answer is "Probably not!" To understand why, you need to understand why the government and foundations give away money. Foundations are set up by wealthy people or companies that want to give back to the communities in which they do business. They want to do some kind of good in the world, and this "mission" is built into their charter and articles of incorporation. This limits the types of projects to which they can give money. The federal, state and local governments establish grant-making programs to address issues of public need or concern in areas like human services, transportation, community development and infrastructure. Unless your business meets one of these very specific targeted criteria, it is unlikely to be funded.
Undesignated Grant Funds
Private and public grant-making organizations do not usually have pots of money for discretionary funding. Even those that do have special funds of that source only grant them to projects that meet the mission of the foundation or grant program. If a foundation gives funding to children's programs and wildlife conservation, it will do you no good at all to request a grant to help you open an art gallery or clothing boutique. Tens of thousands of grant applications are received by grant-makers every year that are pitched into the wastebasket after the reviewer scans the first paragraph. Very few foundations make grants to individuals for starting for-profit businesses. IRS regulations do not allow it, and grant-makers consider for-profit startup capitalization the province of bankers and investment capitalists.
Startups Funded
The only start-up businesses that grant-makers will fund are nonprofit businesses that meet a specific need for the community, state or nation and--more importantly for your eligibility for that grant--a need that the grant-maker is targeting. The U.S. Department of Education funds start-up centers for independent living. The Department of Housing and Urban Development (HUD) funds new homeless shelters and rehabilitation programs. The Department of Human Services might provide funding to start a collaborative project between several agencies to feed the hungry, help people find employment or provide transportation for the elderly. If the need is great enough in the targeted community or among the targeted population, the grant maker may fund a new organization to meet the need if one does not exist already.
Some states offer startup grants for small businesses through rural or urban development programs if the business is an essential service in an underserved area. These areas are often high-poverty, high-crime, low-resources areas where banks or other lenders would hesitate to fund you. If you're brave, resourceful and skilled, however, this might be the opportunity for you.
Federal Help for Small Business
The U.S. Government Small Business Administration doesn't provide start-up grants for small business. It does, however, provide low-interest loans for small business, particularly those owned by women, minorities, individuals with disabilities and others who historically have difficulty starting businesses. The financial assistance is in the form of loans, not grants. Other federal agencies may provide "development" funds in the form of loans or contracts for services to new or newly established businesses that meet a need for a targeted community. You still probably have to meet specific criteria, be able to raise some money on your own and have a really good business plan, but low-cost loans can make the difference for a new business.
The Importance of Planning
Knowing what your business is and what you need to get it started is the first step toward finding funding. Before you start, create a business plan. This includes a marketing study, complete budget, equipment lists, operating plans, staffing plans and the whole works. No one funds bad ideas. Make sure you have a good idea and a plan that helps insure your success.
Find Out What's Available
Your business plan will suggest the agency of the government or type of foundation you will want to approach. A funding library section at your public library or the local United Way or a regional Nonprofit Management Center will have tons of materials and resources to help you find the kinds of grant makers you need. Online, one of the best resources is the federal Grants.gov website. Your state may have a funding alert website with links to specific funders that fund in your area. They can be found with a basic Internet search. Other potential resources are listed below.
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