Small Business Grants

Small business represents the largest segment of the North American economy creating more than  64% of new jobs every year in the United States of America alone. Large business entities and corporations are virtually endangered accounting for only 18% of employment opportunities in Canada and the United States.  Small business is by far the most productive segment of the economy with the most consistent trend of high growth job development.

Historically the preference for lenders has been to provide financing and growth investment to large corporate organizations that were solidly leveraged with assets that could be accessed for liability or default repayments.  A rather business centric attitude existed defining large corporations as being far more stable in terms of investment safety than a small business which may have minimal assets at its disposal.  Large companies were viewed as “safe” to invest in by the rules of the old economy.

Rules do change however.  Given the complex Global economic health (or lack of it) the rules for lenders have become far more restrictive and cautious.  This is true for all areas of investment as certain instabilities such as the housing bubble (adjustment of overvaluation of land and property), natural disasters such as the earthquakes, tsunami and nuclear crises of 2011 in Japan and other issues have lead to a state of economic uncertainty.

Small businesses present somewhat of a quandary to investors.  On one hand the statistical evidence is clear that the economy is driven by small business.   It is not an assumption the figures are readily available.  And so logically it makes sense that funds should be available to provide for small business ventures if regulators and lenders are to stimulate the economy and create more jobs.  Unfortunately small businesses are also known for having a high rate of bankruptcy and defaulting on investment loans.  The failure rate of the cottage industry or small business is very high making which creates a lack of confidence for lenders to invest larger amounts of capital into small business development.

Given the outlined factors it becomes difficult for the small business to take route without capital investment.  Start up costs and inventory, staffing and salaries may all require sourcing prior to the launch of the small business and with more doors closing in terms of the quantity of and availability of investment lending for small business, the entrepreneurs are seeking to start their business by whatever means are possible including leveraging personal credit (line of credit or credit cards) or refinancing their principal residence in order to invest the equity of their home into the start of what they hope will be a successful business endeavor.  However this is a band aid solution to poor financial investment options for small business owners.  The best route is to secure capital investment for start up businesses which is external to the individual’s personal finance.  It makes for more accurate accounting in the long run as well as protecting the personal financial health of the proprietor.

In response to the difficulty which most small businesses encounter when attempting to secure investment there are a myriad of alternative funding options available for the enterprising entrepreneur from the government as well as from business associations and other non-profit organizations.  These funding opportunities are present in the form of a Grant which is a financial endowment of capital or equipment in order to begin or expand within a small business environment.  But before endeavoring to secure a grant for your small business it is important to understand what kinds of grants are available to you and learn the proposal process in order to qualify for a grant.  The small business sector is very important the United States Government and as such it developed its own website which provides programs and assistance to small businesses.  The organization is called U.S. Small Business Administration (SBA).

Understanding a Small Business Grant

When launching a small business the budget is tight as expenditures for the set up (few businesses exist as turn-key operations) compound and increase without the benefit of a flow of income. Starting a small business can quickly add up to huge expense and aggravation while trying to manage planned and incidental expenses.  Increasingly one of those expenses can be the repayment of capital loans which can put an additional strain on a new start-up.

The benefit of a small business grant versus a small business loan from a chartered bank or investor  is that it does not have to be repaid.  Grants or endowments are an excellent source of capital for the fledgling company as it provides the required liquidity to successfully commence operations without the added pressure or expense of having to repay a loan.

Another advantage of a small business grant is that an individual or organization can experience an unexpected influx of investment from one simple grant proposal. The process to research and to provide a request in writing can be a very arduous and time consuming one, but when you consider the immense benefit of receiving funding that does not have to be paid back, it is well worth the effort.

A successful grant endowment begins with a successful administrative process.  Anyone seeking a small business grant should be aware of the amount of time and writing that goes into making a proposal and ensuring that a thorough job is done.  Since competition is so strong to receive a small business grant (give the number of small business applications annually) it is important to ensure that the grant is completed and the application made in a professional and thorough manner.  It is after all, similar to “Free Money” and a valuable asset to any small business in terms of capital and prestigious to the organization.

When creating a proposal for a small business grant, please consider the options:

• Does the proposal clearly identify a need
• Is there a breakdown of budget and spending?
• Will there be a tangible measurable benefit to receiving the funding
• Is there a strategic plan in place?
• Is there evidence of marketing research and demand?
• How will the business succeed where others have failed?
• Is there contingency planning in place?
• Are other sources of funding incorporated into the business?

 

Essentially the provider of the grant (government or non-profit) wishes to ensure that the financing is being placed in the hands of individuals who will make the most out of the investment and use it to successfully create or expand their small business  to stimulate job creation in the United States.  If the proposal for the grant does not clearly demonstrate that as a goal or likelihood the business may be declined for consideration.

It is important to remember that while literally billions of dollars every year is budgeted for grants and economic stimulus, receiving a grant from the government involves a great deal of bureaucratic red tape.  Some government grants come with criteria and legislation that (once awarded) actually govern the way you can spend the grant.  Grants are highly competitive with possibly thousands of individuals vying for the same opportunities , so while they are an excellent opportunity for a small business and worth pursuing, they are by no means an easy or quick way to procure funds for investment or expansion.

The Advantage of a Grant Over a Loan

There are many advantages to being awarded a grant versus seeking out a loan for small business venture capital.  First and foremost the grant does not have to be repaid.  This is a tremendous benefit for small companies looking to launch quickly and dive into the market place.  The money saved while attempting to budget loan repayments and interest costs on borrowed funds make the application for and receipt of a grant a tremendous advantage.

There is also a degree of recognition when a small business receives a grant from the government or another non-profit organization.  It tends to speak to the validity and business acumen of the small business if they were fortunate to pass the scrutiny and decision of the Federal Government.  It is almost viewed as a gold seal approval of the small business enterprise.

How Much Can Be Financed?

A government grant is not a loan and as such receiving one is not the same as arranging long term financing or repayment.  First it is best to consider the grant to be an endowment or a “gift” that was awarded based on need and having met whatever specific criteria was required to be acknowledged by and selected for the honor.

Grant amounts can vary on a case by case basis.  In terms of dispersing  a grant, it may be released to an individual in portions depending on the state or branch of government.  It also may require evidence of the small business in operation and a review of its business books to verify financial information provided which may have been part of qualification for the grant.

In terms of the amount of the grant there are those which are bestowed by the United States government in excess of hundreds of thousands of dollars each.   Some are even for millions of dollars of investment in small business or for dispersing by regional non-profit organizers.  Whatever the circumstance a grant for small business could be exactly what is needed to penetrate the commercial environment.

Reporting Grants as Income

Even though receiving a grant is more like an endowment or a gift, the amount that is received for application within the business must be reported as earnings during income tax time.  If the grant is received in a monetary form it must be reported as income.  However if the grant is received in a physical form (for instance a purchase of computer equipment for students) the value of the endowment must be calculated and that amount is claimed on taxes over the amortization rate of the equipment.

Where to Find  a Grant

If determined to use the money allocated by the Federal Government or a registered non-profit in the form of a grant you must be prepared to look for it.  Some websites provide the information required to make a proposal for the grant directly on their own individual sites while others simply provide the detailed (and expansive) guidelines for the application process.

Some excellent resources for small business grants include the U.S. Small Business Administration (UBA) whose aim is to “Aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns”. The website features business networking, listings of upcoming continuing education courses and conventions.   In addition to providing grants and information about grants for small businesses the organization also provides low interest loans for “disaster recovery” which refers to some key areas hit hard by natural disasters.  The site provides tips and tools to source financial supports for the small business owner.

Another helpful portal to connect small business owners with viable non-profit partners includes the popular USA.gov .  This is the official site for the United States Government and the link provides information on grants, loans and other types of assistance include tax information resources.

Endowments and grants are a powerful vehicle to distribute opportunity to key areas to “kick start” the economy and stimulate job creation.   Although it takes some time to become educated on the process of applying and the procedures for qualifying, if you know where to look you can find unlimited financial resources to support the launch and growth of your small business.  Essentially when small business succeeds the entire economy succeeds on a regional and national level.

Investment in small business is the engine of economic recovery and both government and non-profits acknowledge the importance of supporting growth in this key commercial area.  By becoming aware of the available resources an individual can inject much needed funds to create new opportunities or continue to grow and successfully contribute to the economic health and well being of the country.