A potential source of small business funding is grants. A grant is a gift of money that does not have to be repaid. While there is no nationwide network for awarding grants to start-up firms, almost every state, city, and local community is trying to find ways to encourage people to start businesses as a way of growing their economies. As a result, there are a growing number of programs available through both the public and the private sectors to provide grant money to promising business start-ups.

Obtaining a grant takes a little detective work. Granting agencies are by nature low-key, so they normally need to be sought out. The best place to inquire about the availability of grants for a particular business is via your local Small Business Development Center, SCORE chapter, and similar organizations. Although these groups rarely have grant money available, they’ll be able to direct you to organizations that are awarding grants to small businesses in your area. Most grant programs are competitive, meaning that you have to apply for the grant and compete against other start-ups to receive the funds. One of the keys to obtaining grants is to learn to write effective grant proposals. Many Small Business Development Centers sponsor seminars on how to write successful proposals.

Obtaining a grant takes a little detective work. Granting agencies are by nature low-key, so they normally need to be sought out.

A typical scenario of a small business that received a grant is provided by Rozalia Williams, the founder of Hidden Curriculum Education, a for-profit company that offers college life skills courses. To kick-start her business, Williams received a $72,500 grant from Miami Dade Empowerment Trust, a granting agency in Dade County, Florida. The purpose of the Miami Dade Empowerment Trust is to encourage the creation of businesses in disadvantaged neighborhoods of Dade County. The key to William’s success, which is true in most grant-awarding situations, is that her business fit nicely with the mission of the granting organization, and she was willing to take her business into the areas the granting agency was committed to improving. After being awarded the grant and conducting her college prep courses in four Dade County neighborhoods over a three-year period, Williams received an additional $100,000 loan from the Miami Dade Empowerment Trust to expand her business.^[1] There are also private foundations that grant money to both existing and start-up firms. These grants are generally tied to specific objectives or a specific project, such as research and development in a specific industry.

The federal government has a pair of grant programs for technology firms. The Small Business Innovation Research (SBIR) program is an established program that provides over $1 billion in cash grants per year to small businesses that are working on projects in specific areas. Each year, ten federal departments and agencies are required by SBIR to reserve a portion of their research and development funds for awards to small businesses. The second program, Small Business Technology Transfer (STTR), is similar to the SBIR program except it requires the participation of researchers working at universities or other research institutions. A list of the agencies that participate in both programs, along with an explanation of the application processes, is available at www.sba.gov/SBIR.

The full spectrum of grants available through the federal government is listed at www.grants.gov. State and local governments, private foundations, and philanthropic organizations also post grants announcements on their Web sites. Finding a grant that fits your business is the key. This is no small task. It is worth the effort, however, if you can obtain some or all of your start-up costs through a granting agency.

Finding a grant that fits your business is the key. This is no small task.

One thing to be careful of is grant-related scams. As a business owner, you may receive unsolicited e-mail messages from individuals or organizations that assure you that for a fee they can help you gain access to hundreds of business-related grants. The reality is that there aren’t hundreds of grants that fit any one business—so the offer is likely a scam.