As a small business owner, you may need help with startup costs or funding your operations at times. When entrepreneurs need a financial boost, many look into a small business loan or line of credit. But depending on your circumstances, a business grant may be more attractive than traditional funding options.

Business grants offer essentially free money, so they are a great way to help establish and grow your operation without needing to make repayments. You can also use grants to supplement other traditional methods of funding a business.

Going through the process of applying for and receiving a business grant has its advantages and disadvantages. There are many factors to consider when pursuing this type of funding for your business.

What is a small business grant?

A grant is money that is given to a person, business, or corporation by a federal, state, county, or local government. Private businesses or corporations may also distribute financial grants, as several did during the COVID-19 pandemic.

Grants do not require repayment of any kind. They are an attractive option for entrepreneurs and small or online businesses with little cash available for growth or expansion.

There are grants available for all types of small business owners, including women, minorities, veterans, and disabled Americans.

Typically, a grant becomes available when a government agency, non-profit or private business chooses to set aside grant money for an area of concern. These can include:

• Grants for minority-owned businesses
• Grants for young entrepreneurs
• Grants for startups
• Grants for veterans
• Grants for women entrepreneurs

The pros of small business grants

The main advantage of using small business grants is that you do not need to repay them. This is welcome news for many small businesses that may have financing difficulties that make it challenging for them to repay a traditional business loan.

Another pro is that information about the availability of small business grants is relatively easy to find online. Doing some research upfront will help you avoid grants you’re not qualified for, and target grants that you are most likely to win. There are several free resources that can point you in the right direction of the many grants that are available:

• The Small Business Administration (SBA) offers a limited number of grants to eligible community organizations for promoting entrepreneurship and to certain businesses in specific industries. However, the SBA does not offer grants for starting or expanding a business.
• Grants.gov gives a vast amount of information on federal small business grants. This one-stop shop for federal-grant seekers offers you access to more than 1,000 grant programs that award more than $500 billion annually. Intended to make it easier to find and apply for federal grants, the site offers a simplified process for submitting electronic applications. It also has a dedicated customer support team and an app.
• Small Business Innovation Research Program (SBIR) is a federal funding program coordinated by the SBA for small businesses focusing on federal innovation and Grantees must meet requirements including U.S. citizenship and number of employees.
• Small Business Technology Transfer Program (STTR) focuses on research and development and bridging the gap between the performance of basic science and commercializing resulting innovations. Its goal is to transfer the technology developed by research institutions through small businesses.
• The National Institutes of Health Research Grant Programs offer independent scientific research grants, including the very popular R-series grants, through the National Institute of Allergy and Infectious Diseases and other institutes and centers.
• The S. Economic Development Administration, within the U.S. Department of Commerce, helps businesses secure grants and other financing through its regional offices around the country.
• The Minority Business Development Agency connects certified Minority Business Enterprises (MBEs) with business consulting and financial assistance through its Minority Business Centers.

In general, if you discover that you are qualified for one grant program, you are likely to find others for which you also may qualify.

The cons of small business grants

Although the idea of getting free money to fund your business sounds very appealing, be aware that small business grants can have significant drawbacks.

Small business grant eligibility can be strict

Most small business grants have rigorous eligibility requirements, and it can take time to thoroughly comb through them. If you overlook them and fail to meet any of the requirements, you may not be eligible for a grant you’ve spent time applying for.

For example, you may have spent the effort to get certified as a minority-owned business but you still might not qualify for certain grants because they require that you operate in a certain industry.

There are strict rules when it comes to federal and state grants

A state or federal grant is often funded with taxpayer dollars and therefore has very stringent terms. Unlike traditional loans, these grants for small businesses are not issued for starting a business, paying off debt, or covering basic operating expenses such as payroll costs.

A small business grant application is time-consuming

Because grants are essentially free money, there are hidden drawbacks associated with them — including how much time is needed to apply. Typically, grant applications require a lot of paperwork that takes away from the hours you have available for running your business.

In addition to the application, you and your small business may also have to provide additional documentation such as the demographics of your market, your product or service, and your specific reasons for applying for the grant.

Many small business owners do not have the time to do the stacks of paperwork required for one grant application. And they often do not have the funds available to hire someone to be fully dedicated to the grant-writing process.

Waiting for a grant approval adds additional time

Small business owners who apply for grants need patience. After all the time you spend on the application process, be prepared to wait even longer for the response. It can take weeks and sometimes months to find out whether you’ve been approved for a small business grant. This can be frustrating and stressful, especially if you need the funds quickly.

The competition for grants is fierce

There are hundreds of thousands of small and online businesses trying to secure free grant money just like you. This means the competition can be fierce.

Know the strengths of your business and do some research on the types of grants for which you may qualify. This will help position you and your business well during the application process.

A small business grant involves regular updates

How to get a grant for a small business

When you’ve identified grants that are a good fit for your business, the next step is to apply. Every grant application is unique, but common requirements include:

• Meeting application deadlines
• Registering on an online platform
• Supplying detailed information about your business finances and plans
• Explaining how you will use the funds
• Describing what sets you apart from other applicants
• Keeping records of how you use the grant funds after you receive them

You may wonder, can anyone write a grant proposal? The answer is yes. After all, small business owners are experts on the businesses they run. Plus, you can fill in any gaps in your grant-writing knowledge by using online resources. And you may be able to repurpose a lot of the documentation that comes out of the process for future grant applications.

But because tackling grant applications can be a very time-consuming process, you may benefit from hiring a professional grant writer. Weigh the pros and cons of your individual circumstances and each grant you are considering before making a final decision.

Alternatives to small business grants

Grants can be beneficial, but they may not be the easiest or quickest way to improve your cash flow. Although you might see them as a very attractive option, they may not be the easiest or quickest way to improve your cash flow.

If you do not have the time or resources to spend on the grant-writing process, consider applying for a business line of credit or a small business loan.

Learn more about the differences between grants and loans.