By Jurie Hendrik Human
You can think of a grant as a type of business loan with one vital difference: you don’t have to pay the money back. A grant is typically given to a small or growing business to help them to succeed thanks to an injection of funding. For start-ups, margins are tight, with over 60% failing, so a grant can make the difference between staying afloat or going under.
A business grant is typically awarded for a specific purpose such as upgrading infrastructure, expanding production, and so forth.
This is why grants are often called “free money”. However, it may take significant time and effort to secure a grant since they are highly sought after, which makes the process highly competitive. Because of their nature, grants are usually handed out by governments or other development organizations to help to stimulate the business and entrepreneurial sector.
What are the different types of grants?
Government grants
The largest providers of grants are typically governments. In the U.S., for example, grants are available at the federal, state, or city level. At the end of 2020, the U.S. government signed a bill to make over US$900 billion available in business relief packages, some of which will be issued as grants. The city of Charlotte, NC, made US$30 million available in grants through its Open for Business initiative.
Minority grants
These types of grants are typically aimed at promoting diversity in the business sector or correcting historical imbalances. They are generally available to women, veterans, and other minority racial and ethnic groups. For example, the Minority Business Development Agency (MBDA) awarded US$5.1 million in grants for this purpose in 2020.
Corporate grants
Corporates or for-profit businesses may also award grants. For example, the FedEx Small Business Grant Contest awards up to US$250,000 in grants to 12 businesses while the Neighborhood Small Business Relief Fund has made over US$5 million available in grants to businesses.
Private grants
There are also surprisingly many private individuals, organizations, and foundations willing to provide grants to businesses for various reasons.
International organization grants
There are also organizations that are willing to issue grants to businesses in multiple countries. They are typically governmental agencies, regional unions, or other developmental organizations. A prominent example is the European Union which offers various forms of funding (including grants) for small businesses, non-governmental organizations, young people, and researchers, amongst others.
What is the easiest grant to get?
Most individuals and businesses apply for governmental grants as these are typically more accessible and easier to find. Governments tend to favor existing businesses or individuals involved with socio-economic policies. For example, it may be easier to receive a grant for specific business types or owners:
- Innovators
- Green businesses
- Rural businesses
- Women, veteran, or minority-owned businesses
- Non-profit organizations
During an economic or social crisis, governments may also provide disaster-relief grants, especially in low-income communities. For example, the Shuttered Venue Operators (SVO) Grant made US$15 billion available to businesses forced to close their doors during the COVID-19 pandemic.
Grants are also easier to get in specific industries that are seen as more relevant, profitable, or for the social good. These include:
- Technology
- Education
- Medical research
Typically, grants are not awarded for the following reasons:
- Starting a new business from scratch
- Paying debts
- Simply covering expenses without any developmental use
What is the grant process?
The process of applying for a grant may vary greatly from country to country, state to state, or depending on the specific entity you are applying to. It may take weeks simply to gather and submit all the data you need and then a vastly different amount of time before the grant is or is not awarded.
For example, here are the complete instructions for applying for a grant from Grant.gov via the STEP (State Trade Expansion Program) in the U.S.
Applying for a grant will most likely be a multi-step process in which you need to liaise with multiple organizations and meet a number of different deadlines. You will also need to provide detailed financial and operational data for your business which can take some time to compile in itself. Typical information includes:
It may be worthwhile engaging a business grant advisory service or even attending industry-specific grant writing workshops to stand the best chance of being successful.
Are grants taxable income?
Although you may not have to directly pay anything back when awarded a grant, however, unlike loans, grants are deemed to be taxable income by most tax authorities. So, you will need to invoice this the next time your taxes are due.
