Small business funding and grants are the two most common ways for small business owners to secure funding. The key difference between these two options is that grants don’t need to be repaid – making it a more involved application process for small business grants. Before you decide to pursue a grant or funding, it’s vital to understand what are these, how they work and how to secure them.
What Is Small Business Funding?
Small business funding options include traditional loans, SBA loans, and alternative lending options. These loans require payment; and it can be weekly, monthly, a one-time payment, and in certain options a percentage of your profits.
Before applying for business funding programs, make sure you are eligible by considering factors like your annual revenue, time in business and credit score.
Types of Small Business Funding Available
Apart from traditional bank loans, there are other funding options available as well such as The SBA, Alternative Lending including online business loans, crowdfunding, and merchant cash advances.
- Conventional Bank Loans
Conventional bank loans are the prime source of funding for small businesses that you will repay on a monthly basis plus interest. Some banks offer quarterly or annual payments as well. Getting conventional funding is tough. It involves strict qualification criteria with requirements like higher annual revenue of $250,000, a great credit score of 680 or higher, and at least three years of time in business.
- Small Business Administration (SBA) Loans
Small Business Administration also provides grants and loan programs for small businesses that don’t qualify for traditional funding. The SBA loan programs are the most sought-after financing options with higher loan amounts, flexible repayment terms, and lower interest rates. Another important thing is that the federal government guarantees SBA loans. However, in order to qualify for SBA loans, you need to have a good credit score and cash flow. The loan process is also longer and usually takes up to four weeks.
- Alternative Lending
Besides traditional funding and SBA loans, there are online lending options available for small businesses including online business loans, Crowdfunding, merchant cash advances, and peer-to-peer lending options.
Crowdfunding is among the popular funding option for startups. Popular crowdfunding sites like Kickstarter, Indiegogo, and Causes allow people to invest their money to get your business up and running in exchange for your products or service.
A merchant cash advance (MCA) is another funding option where you get cash upfront in exchange for a percentage of your future credit card sales. Merchant cash advances are best suited for restaurants and retailers.
Peer-to-peer lending or P2P Lending is another funding option where small businesses secure capital via a third-party lender that matches borrowers with investors. The application process for P2P lending is simple with quick funding but at high-interest rates.
Merchant Advisors provides small business funding with a simple application process, little documentation, loan amounts from $5,000 to $500,000 with approvals in 24 hours and funding in as quickly as 3-5 business days.
What Are Small Business Grants?
Small business grants are money offered to small business owners to help them realize their business goals. You can get business grants from the federal government, regional governments, and several non-profit organizations.
Small business grants don’t need to be paid back and in order to secure a grant, you’ll need to demonstrate that you will put the money to good use. To secure a grant, you need to have a solid business plan, show progress and how you’ll use the money. The grant application process can involve meeting with grant providers and providing financial statements and projections.
How to Apply for a Small Business Grant
Here are a few common things you need to provide when applying for a small business grant:
- Time in Business
- Business Monthly Revenue
- Number of Employees
- Monthly Revenue
- How you will use the funds
- Business Elevator Pitch
- Employer Identification Number (EIN)
- The imagery of you or your partners or offices
- A viable business plan
Types of Small Business Grants Available
You can get small business grants from various federal agencies, non-profit organizations, and corporations. Here are some of the most common types of business grants available for you.
- Federal Government Grants
The federal government grants are economic aid typically offered to non-profit, educational, and scientific research institutions. You will find a variety of online resources to help you find federal grants. The main official source of such grants is Grants.gov that is a detailed database of federal funding opportunities from state government and federal agencies.
The Small Business Administration (SBA) is another most popular source of small business grants that work with different organizations to provide grants for small businesses.
If you’re engaged in scientific research and development, you can obtain federal grants via the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs. There are also financial awards available for businesses with export development.
- State and Regional Agencies
There are state and regional government agencies that provide small business grants. The Economic Development Administration (EDA) offices under different regions provide grants to small businesses in their respective regions.
There are also State-based grants particularly for businesses that directly benefit the state’s residents such as educational institutions, healthcare, and the arts.
The best approach to look for State and Regional Agencies in your area, visit your state’s government website or on the Grants.gov. The most common state-based or agencies for grants are:
- Appalachian Regional Commission (ARC)
- Delta Regional Authority (DRA)
- United States-México Border Health Commission
- Western Governors’ Association (WGA)
- For Women-owned Businesses
There are particular grants available for women-owned businesses. Women in the U.S. own approximately 40% of small businesses. Besides this huge number of businesses, they’re less likely to receive business funding approved for a small business loan.
To help women business owners grow and succeed, some government agencies, nonprofits, and private companies provide small business grants to women-owned businesses. The best small business grants for women-owned businesses include:
- National Association for the Self-Employed Growth Grants
- Eileen Fisher Women-Owned Business Grant Program
- Amber Grant
- IdeaCafe Grant
- #GIRLBOSS Foundation Grant
- Cartier Women’s Initiative Award
- FedEx Small Business Grant
- The Halstead Grant
- Open Meadows Foundation
Apart from these grants, there are state and local grant options available for women business owners to apply for.
- For Veteran-owned Businesses
Veterans owned almost 10% of the small businesses in the U.S. However, starting a business is challenging for veterans who are experiencing the military transition to civilian life. There are grants, financial education, and other services available to help veterans with their businesses. You can also use the SBA’s search feature to find your local center for grants. The best grants sources for veteran-owned businesses include:
- Veterans Business Outreach Center
- Office of Small and Disadvantaged Business Utilization
- The Boots to Business program
- Small Business Innovation Research Grant
- Small Business Technology Transfer Program
- The National Association for the Self-Employed Growth Grants
- Idea Café Grants
- Self-Employment Grants for Service-Disabled Veterans
- Veterans Business Fund
- Vocational Rehabilitation and Employment Program for Disabled Vets
- The StreetShares Foundation
- Veteran Entrepreneur Portal
- Women’s Veteran Entrepreneurship Training Program
- For Minorities
The minority-owned businesses also have to face challenges in finding financial assistance to start and grow their businesses. To help them succeed, there are many small business grants available to help overcome the challenges. The best grants sources for veteran-owned businesses include:
- Minority Business Development Agency (MBDA)
- Office of Minority Health (OMH)
- Native American Business Development Institute (NABDI) Grant
- Community Programs to Improve Minority Health Grant Program
- McInerny Foundation
- FedEx Small Business Grant Contest
- Asian Women Giving Circle
- National Association for the Self-Employed (NASE) Growth Grants
- Native Language Immersion Initiative
- LendingTree Guide Small Business Grant
The Key Differences: Small Business Grants vs. Small Business Funding
- Grants are taxable income
- You pay interest on business loans
- Grants won’t help you build business credit
- Grants are direct competition, and loans aren’t
- Loans carry significant penalties
Which Is Better: Small Business Grants vs. Small Business Funding
While pursuing these financing options, there are a few things you should consider. When time is of essence or your business doesn’t qualify for grants, business funding could be a better option.
When you’re just starting with low credit score and annual revenue, qualifying for business funding could be difficult. A small business grant is the most appropriate option for startups. However, you can also search for alternative lenders that provide startup business loans.
You can also benefit from using both these options. Some businesses use business funding to supplement a grant. Having an adequate amount of capital is essential for your business to stay competitive and thrive. Therefore, having quick access to a grant or business founding could be the difference between failure and success.