Daymond John, renowned Shark Tank investor, once said, “No matter what business you’re in, business is business and financing and money are critical.”

Business financing is often a sore point for small business owners because it is difficult to acquire. Get a loan and pay high interest rates. Get an investor and reduce your equity. The gains of sourcing financing can be lost when the stakes are so high.

Thankfully, small business grants provide a solution that removes the risks associated with high interest rates and lost equity.

What are small business grants?

A small business grant is a predetermined sum of money that government agencies and/or private entities give to small businesses. It can loosely be called “free money.”  It’s important to note, however, that nothing in life is truly free. Small business grants are filled with caveats that specify how the money should be spent. Additionally, a lot of work goes into creating grant proposals and meeting the requirements for winning the grant.

Why are government grants for small businesses so important in 2022 and beyond?

Government grants for small businesses are particularly important for developing a country’s micro, small and medium enterprises (MSME) sector. Because these grants are funded by tax dollars, they have more restrictions than grants offered by private entities like FedEx and Cartier, as well as foundation grants like WomensNet’s Amber Grant.

Chief amongst these restrictions is an emphasis on how the money will be used to help the business make a meaningful impact in the community. Grants from the federal government were created to encourage businesses to be community builders and contribute to economic growth. A business that focuses on community development and innovation is sustainable and respected. This is the primary reason government grants for small businesses will remain relevant in 2022 and beyond.

Furthermore, many grant opportunities tend to reward innovation and scientific research. More grants tend to be offered in these categories because they give the country a competitive advantage. After all, it pays to stay ahead of the game.

Find more information on How to Start a Business here.

Are federal small business grants better than small business loans?

It depends. Small business grants and small business loans each have their place in small business financing. Your choice depends on:

  • How quickly you need the funds
  • Whether you are working on a single project or multiple projects
  • Ability to repay the loan

In an ideal world, a small business would be fully self-funded and self-sustained. In fact, this is the recommendation for startup businesses. However, there may come a point at which additional funding is needed to facilitate business growth. The table below explains the pros and cons of small business grants from federal agencies and small business loans, so you can determine which funding option makes most sense for your business.

Small Business Grants Small Business Loans
  • No repayment necessary
  • Many federal agencies offer grants, but you may only qualify for a few
  • Not credit score based
  • Increases cash flow and decreases tax payments since loan interest is deducted from pre-tax earnings
  • Money can be used for any purpose. Lending agencies are only concerned with your ability to repay the loan
  • The loan approval process is shorter than the grant approval process. Money is usually accessible within a week.
  • Highly competitive
  • Qualification requirements are often difficult to meet
  • It may be necessary to hire a grant proposal writer
  • Grant approval and fund disbursement is often a lengthy process
  • Money is disbursed for a specific purpose
  • A business would need to apply for several grants if there are multiple needs. There is no guarantee that these grants exist.
  • Most grants are typically only offered once per year
  • Restrictions for some loans can make some small businesses illegible, especially if the business owner has poor credit and/or lacks a solid business plan
  • A loan puts the company in debt. If the debt is not repaid, the company can go bankrupt.
  • Monthly interest payments are required

How can I get a government small business grant?

These are the steps for getting a small business grant:

  1. Assess the grant-giving entity
  2. Identify the problem you are attempting to solve
  3. Write and submit a grant proposal.
  4. Carry out the necessary follow-up actions as stipulated by the grant-awarding entity.

Assess the grant-giving entity

Federal grants for small businesses are a good way to get access to “free” money.  However, your grant funding application has a greater chance of success if you ask these questions about the government entity that’s actually awarding the grant:

  • Does this government entity’s vision align with your company’s vision?
  • What is the motivation behind awarding this grant?

You are more likely to stick with the grant application process and create a strong proposal if your business’ vision and motivation aligns with those of the grant-awarding government entity.

Identify the problem

Each government small business grant has its own requirements that relate to a community-specific problem. These requirements are detailed in the Funding Opportunity Announcement (FOA). You have a better chance of securing the grant if you clearly understand this problem and how your business can use the grant funding to solve it.

Some questions you should answer include:

  • How many people does the problem impact?
  • Has anyone attempted to solve the problem with any measure of success?
  • Are any negative effects possible as a result of the changes you will make to solve the problem? How can you mitigate these negative effects?

Write and submit a grant proposal

Various government small business grants exist that provide funding for a wide range of problems. Some of these government small business grants are discussed later in this article. Each grant has specific requirements; you should ensure that your business can meet these requirements before investing time and money into creating a grant proposal. It often works best to hire a grant proposal writer because writing a grant proposal is a time-consuming and detailed process.

Follow up

You have won the grant. Awesome! Now is the absolute best time to develop a relationship with the grant officer. Doing so will help you better understand what this person expects and how deliverables should be presented. Ask questions so that you’re in-the-know with timetables, and be sure to keep lines of communication open.

What are the 10 best government grants for small businesses?

Small Business Innovation Research (SBIR) program

This government grant is awarded to businesses making strides in technology innovation. Funds are provided for research and development with additional support being given for the commercialization of the technology or service created.

The grant began in 1982 as a part of the Small Business Innovation Development Act and has provided funding for a variety of companies in the defense, environment and healthcare industries. Funds are obtained from the Federal Research and Development Project. Any small business that is awarded this grant must complete the three phases of the program to receive the full grant award.

  • Phase I – The budgetary allocation for this phase does not usually exceed $150,000. The Federal Research and Development team determines whether your project is truly viable.
  • Phase II – The results of Phase I determine the funding requirements for this phase. Funding usually does not exceed $1,000,000 and is dispersed over a two- year period.
  • Phase III – This is a non-funded phase where the product is commercialized. Other government agencies associated with the project may be the main consumers.

Small Business Technology Transfer program (STTR)

The STTR program is similar to the SBIR but the emphasis is more on establishing public and private sector partnerships in research and development. This government grant for small businesses creates opportunities for small businesses to collaborate on joint ventures with the nation’s leading nonprofit organizations. The products produced are commercialized and some, or all, of the profits given to the small business. Like the SBIR program, any small business that receives the grant must complete three phases to receive the full grant award.

US Economic Development Administration (EDA)

The EDA is mandated to foster economic development in all US communities. Grant money is part of the solution and can be viewed on the EDA website, which is constantly being updated to reflect recent funding opportunities. For example, the most recent funding opportunity listed is the Fiscal Year 2020 Public Works and Economic Adjustment Assistance Programs. This grant provides $587 million in funding opportunities for small businesses affected by natural disasters in 2018. Clicking the link redirects you to the website, where you can view details about the grant.

State Trade Expansion Program (STEP)

The STEP is a collection of government grants, and other support; the Small Business Administration (SBA) can offer assistance with obtaining or understanding STEP. This program focuses specifically on helping small businesses with export development. Grants are awarded to state entities. Small businesses can then apply to programs offered by these entities so that they can benefit from export development opportunities. Feel free to send an email to [email protected] to better understand how your business can benefit.

US Department of Agriculture grants (USDA)

USDA grants focus on agricultural development in rural areas. Some of the government grants offered include:

  • Rural Economic Development Loan & Grant Program
  • Rural Energy for America Program Renewable Energy Systems & Energy Efficiency Improvement Guaranteed Loans & Grants
  • Rural Microentrepreneur Assistance Program
  • Socially-Disadvantaged Groups Grant
  • Strategic Economic and Community Development
  • Telecommunications Infrastructure Loans & Loan Guarantees
  • Value-Added Producer Grants

National Institute of Standards and Technology grants (NIST)

NIST is a division of the US Department of Commerce that provides technology, measurement, and standards to position the US as a world leader in technology. All government grants offered by this agency are for small businesses in the information technology (IT) industry. A Notice of Funding Opportunity (NOFO) is posted on the NIST website with a link that directs you to further details on the page.

Department of Education grants (DOE)

The US DOE offers various grants for education-related small businesses. The most recent grants on the DOE website focus on meeting the needs of students with disabilities and accurately collecting, reporting and analyzing student data. Some grants are reserved for public schools and state-owned education agencies. However, there are some that are open to private non-profit education-related small businesses. Details about these grants are provided on the DOE website.

Environmental Protection Agency grants (EPA)

The EPA is an advocate for the health of US residents and the environment. Scientific research forms the core of many of their endeavors. The government grants offered exclusively by the EPA cover environmental issues such as climate change, state-led climate activities, air quality, transportation, contamination, internet database management, diesel emissions, Great Lakes water quality and pollution. Specific details about the grants can be found on the EPA website.

National Oceanic and Atmospheric Administration (NOAA) grants

The NOAA is a division of the US Department of Commerce that monitors the weather, climate, fisheries management, coastal restoration and marine commerce of the US. This unique US Department of Commerce agency offers grants through the SBIR program. This grant aid provides funding for relevant products with strong commercial potential.

This is not a specific grant. Instead, it is a website that offers a wide selection of government grants across various industries. You are able to view grant requirements, start dates, end dates and submission requirements. You can also narrow your search to identify grants specific to your industry.

What are the best government grants for women-owned small businesses?

Women’s Veteran Entrepreneurship Training Program (WVETP)

The U.S. Small Business Administration (SBA) offers funding to higher learning organizations that are interested in including the WVETP in their course offerings. A woman who runs a non-profit entrepreneur training agency can also apply for this grant. The WVETP is specifically tailored to women service members, women veterans and women military spouses who either want to start – or already have – a small business.

Small Business Development Center (SBDC)

Each state has an SBDC that offers assistance in obtaining financing, whether conventional or SBA guaranteed. While they don’t offer grants themselves, they do help with SBIR and STTR grant proposals, and may otherwise be a fantastic source of knowledge on funding for your small business. You should visit your local SBDC to get more information and see how they may be of help to you.

Additionally, SBDC offers Women’s Business Centers (WBC) that provide complete 360-degree support for small businesses and aspiring entrepreneurs in the form of free business consultations from astute business professionals. These WBCs are formed as a partnership between the SBA and private sector entities through the support of leading colleges and universities. They are great places for business knowledge acquisition and funding opportunities.

Bottom line

Government grants for small businesses demonstrate the government’s commitment to the development of all US communities. Most of these government grants can be found on the website, which is regularly updated.

Only apply for a government grant if you do not need the funds immediately, have a specific project that can benefit from grant funding, and are willing to hire an expert to help you write a strong grant proposal. Otherwise, the time and resources that you spend applying for the grant will be futile.