What is a small‑business grant?
A small‑business grant is a financial award—usually from a government agency, corporation, foundation, or nonprofit—given to a business to support a specific activity or public benefit (for example: research and development, hiring and training, recovery from disaster, expansion in underserved communities). Grants are typically “gifts”: they usually do not need to be repaid so long as the recipient meets the grant’s terms and reporting requirements.
Key points
– Grants are purpose‑restricted. You must use the money for approved activities and document how you spent it.
– The application process is competitive and often time‑consuming. Grants typically require proposals, budgets, and supporting documents.
– Most grants are taxable income unless a specific exclusion applies—consult a tax professional.
– Federal grants usually require registrations (e.g., SAM.gov, Unique Entity ID) and follow a formal “grant lifecycle” with award, obligation, expenditure, and reporting phases. (See Grants.gov.)
How small‑business grants work
1. Announcement: Grantor posts eligibility, objectives, funding amount, deadlines, and required deliverables.
2. Application: You prepare a proposal that explains the project, outcomes, timeline, and budget. You include required attachments (tax documents, financials, resumes).
3. Review and selection: Grantor evaluates proposals against criteria (impact, feasibility, budget realism). Some programs use peer review; others use internal scoring.
4. Award and contracting: If selected, you receive an award letter or grant agreement that spells out conditions, payment schedule, and reporting obligations.
5. Implementation and reporting: You execute the project, keep records, and submit periodic reports and invoices. Noncompliance can trigger repayment or sanctions.
Types of grants for small businesses (overview and examples)
1. Federal grants and programs
– Research & innovation: SBIR/STTR (SBA—America’s Seed Fund) for technology and R&D.
– Capacity building & trade: STEP and SBA support for export promotion and state programs.
– Rural business development: USDA Rural Business Development Grants for rural communities.
– Note: The SBA itself does not provide general startup or expansion grants to most small businesses; it focuses on certain programs and funding mechanisms that support local providers (SBDCs) and specific initiatives. (See SBA, USDA, Grants.gov.)
2. State, regional, and local government grants
– Many states, counties, and city economic development agencies offer grants for job creation, façade improvements, training, or neighborhood revitalization (e.g., Citizens Committee for New York City Neighborhood Business Grant; Texas Workforce Commission Skills for Small Businesses). Check your state EDA or economic development website.
3. Corporate grants and contests
– Corporations run branded grant programs and pitch contests to support small businesses and enhance corporate social responsibility (examples: FedEx Small Business Grants, Visa Everywhere Initiative, DoorDash Restaurant Disaster Relief Fund). Terms vary widely; some are competitive pitch contests with in‑kind benefits.
4. Foundation, nonprofit, and specialty grants
– Foundations and nonprofits fund businesses that meet a mission: minority business development (MBDA/EDA programs), veteran entrepreneurs (Second Service Foundation Military Entrepreneur Challenge), LGBTQ+ business preservation (Human Rights Campaign Queer to Stay), grants targeted by owner demographics (SoGal Black Founder Startup Grant). These grants are often mission‑driven and limited in number.
5. Startup and early‑stage grants
– Some grants are specifically aimed at very early businesses or founders from underrepresented communities. These can be small sums to offset launch costs or seed‑stage awards tied to accelerators or incubators.
Is a grant a loan?
No. A grant is not a loan—typically no repayment is required. However, you must meet the grant’s conditions and reporting; failure to comply can require repayment and may incur penalties. Some grant programs disburse funds in reimbursable increments (you spend first, then invoice).
Is a grant taxable income?
Generally yes. Grant proceeds are often taxable at the federal and state levels unless a specific legal exclusion applies. Always consult a tax advisor to understand how a particular grant affects your business taxes and deductions.
Can you pay yourself with grant money?
Possibly—only if the grant’s budget and rules allow paying salaries or owner compensation. Many grants permit reasonable payroll costs if they are itemized in the approved budget and are necessary for project completion. Owner compensation should be justified and documented.
Does a grant have to be paid back?
Not normally, provided you meet all program requirements, use funds as allowed, and file required reports. Misuse, fraud, or failure to comply with the agreement can trigger repayment obligations and penalties.
Practical step‑by‑step guide to finding and winning a small‑business grant
Phase A — Preparation (2–6 weeks)
1. Clarify your need and goal
– Define the specific project or outcome you need funding for (e.g., buy new equipment, run an R&D pilot, train staff, recover from a disaster).
2. Gather baseline documents
– Business formation documents, EIN, state business license, recent tax returns, profit & loss and balance sheet, bank statements, resumes/CVs of key personnel, project plan, and budget.
3. Set up registrations for federal/state grants
– For federal grants, register in SAM.gov and obtain your Unique Entity ID (UEI). Research if your state requires vendor registration or other profiles. (See Grants.gov.)
Phase B — Search and shortlist (1–4 weeks)
4. Use authoritative databases and local resources
– Grants.gov (federal), GrantWatch (aggregator of thousands of grants—free info, paid subscription tiers available), state economic development sites, local SBDC or SCORE, community foundations, and corporate program pages.
5. Shortlist 3–5 grants that match your project, stage, and eligibility
Phase C — Application (2–6 weeks)
6. Read the solicitation carefully
– Note deadlines, page limits, allowable costs, matching fund requirements, required attachments, evaluation criteria, and reporting expectations.
7. Build a realistic budget and timeline
– Include direct costs (labor, materials, equipment), indirect costs (overhead if allowed), and contingency. Make sure each budget line ties to a program objective.
8. Draft a clear proposal
– Problem statement, objectives, methods/approach, staffing and qualifications, metrics/outcomes, sustainability plan, and detailed budget. Use plain language and address evaluation criteria point‑by‑point.
9. Get reviews and letters of support
– Have a trusted advisor or a local SBDC review your application. Obtain any required letters of support from partners.
10. Submit before the deadline and confirm receipt
Phase D — After award (ongoing)
11. Review the grant agreement carefully
– Note reporting dates, allowable/unallowable costs, audit clauses, and intellectual property terms (especially for R&D grants).
12. Set up grant accounting
– Use a separate cost center or chart of accounts to track grant revenues and expenditures. Save receipts and time sheets and follow procurement rules in the agreement.
13. Monitor and report
– Meet performance milestones, submit timely financial and performance reports, and respond quickly to grantor requests. Keep documentation for the grantor’s audit period (commonly 3–7 years).
Practical tips and best practices
– Only apply for grants that closely match your mission and needs—tailoring improves success rates.
– Don’t assume all grants pay upfront. Many reimburse expenses or disburse in milestones. Plan cash flow accordingly.
– Avoid “pay to apply” or “guaranteed grant” scams. Legitimate public grants do not charge application fees; verify corporate programs through the company’s official site.
– Document everything. Detailed records protect you at audit and prevent disputes.
– Build relationships with SBDCs, local economic development agencies, and nonprofit grantmakers—these partners can provide early notice of opportunities and application help.
– If a grant requires matching funds, secure those commitments before you apply.
– For federal grants, be aware of the grant lifecycle (pre‑award, award, post‑award monitoring) and plan for administrative overhead.
Common mistakes to avoid
– Submitting a generic proposal that doesn’t address evaluation criteria.
– Underestimating administrative burden and reporting costs.
– Using grant funds for unallowable expenses (luxury purchases, unrelated personal expenses).
– Missing registrations (like SAM.gov) that can disqualify you for federal funds.
– Failing to secure required letters of support or matching funds.
Sample quick checklist before you hit “submit”
– Does the project align with stated grant objectives?
– Is your organization eligible? (size, location, demographics, industry)
– Are all attachments included and named per instructions?
– Does the budget add up and match narrative justifications?
– Have you complied with page limits and formatting requirements?
– Have you saved proof of submission?
Timeline expectation (typical ranges)
– Search & prep: 1–8 weeks
– Application writing: 2–6 weeks
– Review & selection: 4–12+ weeks (varies widely)
– Award to first payment: 2–12 weeks after award (depends on disbursement method)
– Reporting: ongoing as specified by the grant (monthly, quarterly, annual)
Where to look (select authoritative resources)
– Grants.gov — primary federal grant search and lifecycle information.
– SBA programs — SBIR/STTR (America’s Seed Fund), STEP, SBDCs (Small Business Development Centers).
– USDA — Rural Business Development Grants for rural businesses.
– Department of Commerce (EDA, MBDA) — regional economic development and minority business programs.
– GrantWatch — searchable database of public and private grants (free and subscription options).
– Local SBDC, SCORE, and community foundations — for application assistance and local opportunities.
– Corporate/grantmaker sites — Examples: FedEx Small Business Grants, Visa Everywhere Initiative, DoorDash merchant programs, Human Rights Campaign Queer to Stay, SoGal Black Founder Startup Grant, Second Service Military Entrepreneur Challenge, Citizens Committee for NYC Neighborhood Business Grant.
Bottom line
Small‑business grants are a valuable, non‑repayable funding source when the project fits the grantor’s goals and you can meet administrative and reporting requirements. They are competitive and take time to pursue, but using the right searches, preparing accurate budgets and proposals, and maintaining disciplined recordkeeping can make grants an effective part of your funding mix. For federal opportunities start with Grants.gov and SAM.gov, and for local help use your state economic development office or SBDC.
Sources and resources
– Investopedia: “What Is a Small-Business Grant?” (source document provided)
– Grants.gov — The Grant Lifecycle; Search Grants.
– GrantWatch — Grant database and subscription options.
– U.S. Small Business Administration — SBIR/STTR (America’s Seed Fund); Empower To Grow; State Trade Expansion Program (STEP); Small Business Development Centers (SBDC).
– U.S. Department of Agriculture — Rural Business Development Grants.
– U.S. Department of Commerce — EDA and MBDA program pages.
– Example corporate/foundation programs: DoorDash Restaurant Disaster Relief Fund; FedEx Small Business Grants Program; Visa Everywhere Initiative; Human Rights Campaign Queer to Stay; Second Service Foundation Military Entrepreneur Challenge; SoGal Black Founder Startup Grant; Citizens Committee for NYC Neighborhood Business Grant; Texas Workforce Commission Skills for Small Businesses.
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.