Financing Your Startup: Are Government Grants an Option?

“Can I get a government grant to finance my business?”

This is one of the most commonly asked questions posted by entrepreneurs and owners of young businesses in the SBA Community. And, in most cases, the answer is “no.” However, some small businesses, particularly those engaged in “high-tech” innovation or scientific research and development, can benefit from government grants.

Here are some facts about government grants for small businesses, including who is eligible and how you can go about finding them:

Can I Get a Government Grant to Start a Business?

No doubt you’ve seen ads purporting to offer access to “free money” to start your business. While it’s not unreasonable to expect that the government may provide grants to small businesses, it’s wise to take most of these claims with a grain of salt. Why? The fact is, government grants are funded by tax dollars, and, as such, there are very stringent rules about how that money is spent.

In short, despite what you may have heard in obscure ads or late night TV infomercials, federal and state governments don’t provide grants for any of the following:

• Starting a business
• Paying off debt
• Covering operational expenses

That being said, there are certain types of grants available. However, these are limited to specific industries and causes, such as scientific and medical research and (more on this below).

Your state government is another source of potential grants, often known as “discretionary incentive grants.” Again, these are closely tied to government objectives and tend to be restricted to larger employers or have strict eligibility requirements that often exclude small businesses.

Small Businesses May Qualify for Research and Development (R&D) Grants

One business venture that does attract government grant funding is scientific research and development. Federal initiatives, like the Small Business Innovation Research (SBIR) program, award grants to hi-tech small businesses or startups to carry out R&D and bring innovative technological products to market. Companies like Symantec, Qualcomm and ViaSat all got a step up thanks to the SBIR program.

How to Find Grants

If you think you might be eligible for a government grant or aren’t sure about the validity of some of the claims you hear in the media, check out Grants.gov. This is a searchable directory of more than 1,000 federal grant programs. Use the Advanced Search tool to search for a grant by eligibility (e.g., for-profits or small business), by issuing agency, or category (e.g., environment or science and technology).

The Bottom Line

The truth is that for most entrepreneurs, starting a business needn’t break the bank. The latest data from the SBA Office of Advocacy shows that up to 40 percent of startups get established with very little financing, often less than $5,000, while up to 25 percent don’t use any startup financing at all.

So before you get pulled down the rabbit hole of “free money”, assess your funding needs. This includes your capital assets like a laptop, printer, web hosting costs, office space or inventory stock – as well as the amount of cash flow you need to keep you afloat until your business is meeting your revenue goals and you are making a profit.

If you think you’ll need financing at some point, be sure to fully develop and test your product or offering so that it’s as complete and ready-for-market as it can be before marketing it or seeking financing.

Grant Money Photo via Shutterstock

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