If you dream of starting or expanding a business but have limited access to capital, consider free grants. Small business grants represent free money from a grant-making organization awarded for a specific purpose, so unlike business loans, there’s no need to repay them. All you have to do is qualify and apply, and you’ll receive the stipend to use for your needs.
There are many different types of free to consider, from government grants to corporate ones, each with their own unique requirements and award amounts. You may qualify for certain targeted grants that aim to foster growth among minority-owned businesses or those in particular industries or geographic regions. In addition, you may find unique hurdles to overcome and scams to avoid—and you might find completely different funding sources to help you grow and thrive.
Learn about the different options for small business grants to improve your chances of securing free money for your small firm.
Free Federal Small Business Grants
A federal grant is funding that comes from federal revenue through a variety of departments or agencies of the U.S. government. Award amounts can be substantial, but the number of grants awarded is limited, and the competition can sometimes be tough.
Head to Grants.gov and click "Search Grants" to find federal small business grants. Most federal grants are for companies in the health, science, or technology sectors.
Common federal grant programs include:
- Small Business Innovation Research Program (SBIR): The SBIR is a competitive funding program available to small businesses focusing on federal innovation and research through 11 federal agencies, including the National Aeronautics and Space Administration (NASA), the National Science Foundation (NSF), and the National Institutes of Health (NIH). Eligibility requirements include a U.S.-based location and at least 50% ownership by permanent residents or U.S. citizens, for-profit status, and no more than 500 employees. Awards range from $50,000 to $250,000 for the first phase of the program.
- Small Business Technology Transfer Program (STTR): STTR is available through five federal agencies, including NASA, NSF, and NIH, to small businesses in the research and development arena. It focuses on the transfer of technology from research institutions to small businesses and then the marketplace. Eligibility requirements and award amounts are the same as those of SBIR but the firm must also partner with a nonprofit research institution.
- National Institutes of Health Research Grant Programs: The NIH also offers independent scientific research grants through the National Institute of Allergy and Infectious Diseases and other institutes and centers, including R-series grants. R01 grants, the most popular, are available to small businesses and have no specific dollar limit, but grant applicants must work in a specific area, like AIDS or bioinformatics.
To receive federal grants, small businesses in most industries must meet the criteria set forth by the Small Business Administration (SBA), which include having no more than a certain number of employees and annual receipts of no more than a certain amount.
State and Local Small Business Grants
Free grants at the state and local levels are generally funded by state revenue and targeted at a particular region's social and economic concerns. Many grants are matching grants, meaning that instead of just handing the money over to you, you’ll be required to match the money or combine it with another source of funding like a loan. Because they're location-restricted, however, these grants are often more accessible than federal free grants.
To find these small business grants, visit your state or city's commerce department website or contact your local chamber of commerce. Examples of grant programs include:
- Delaware EDGE Grants: Delaware's Division of Small Business awards up to $100,000 in small business grants to STEM- and non-STEM-focused firms that have been in business for no more than five years and have 10 or fewer employees.
- California Specialty Crop Block Grant Program: California's Department of Food and Agriculture awards grants of $50,000 to $450,000 to for-profit businesses that advance the state's specialty crop industry, which includes fruits and vegetables.
- Chicago City Treasurer Small Business Plan Competition: This competitive grant program offers up to $5,000 in grants annually to three Chicago-based small businesses that submit an executive summary demonstrating the uniqueness of their business.
Find grants in your state by looking at your state’s department of commerce website.
Corporate Small Business Grants
Getting a free grant from the government may seem straightforward, but given the tight competition, specific requirements, and sometimes meager funding, it can be difficult to make headway. As such, you may want to consider getting some or all of your funding from a for-profit or nonprofit corporation.
You can find corporate grants via an internet search or by visiting the corporate websites of firms you admire. Some corporations offer free small business grants via a competition, which makes applying for them more work. However, unsuccessful applicants may still receive publicity and runner-up prizes.
Corporate small business grants include:
- National Association for the Self-Employed (NASE) Growth Grants: Small business grants worth up to $4,000 each are awarded by NASE to small businesses with an association membership in good standing for the past three months.
- Business Owners' Idea Cafe Small Business Grant: This website annually offers a $1,000 grant to a small business. There's no need to create a formal business plan; just sign up to the website for free as an Idea Cafe Regular and then submit a 1,000-word essay or a two-minute video describing your business and funding plans.
- The Halstead Grant: This grant program from Halstead Bead, Inc., awards up to $7,500 annually to an emerging silver jewelry artist. You'll need to submit a design portfolio and answers to 15 questions for consideration.
Targeted Small Business Grants
The federal government provides free grants and support to specific communities based on a variety of criteria, whether social, economic, or geographic.
Options for these targeted small business grants include:
- Minority Business Development Agency (MBDA) Grants: MBDA provides grants to organizations that operate MBDA centers throughout the U.S. These organizations provide business consulting, procurement matching, and financial assistance to firms owned by minorities. Organizations must be registered with both the System for Award Management (SAM) and Grants.gov to be eligible.
- United States Department of Agriculture Community Connect Grants: These grants from the USDA fund broadband deployment in rural communities where it's not yet available. For-profit corporations and limited liability companies are eligible but must register with SAM and get a Data Universal Number System (DUNS) number.
- USDA Rural Business Development Grant Program: This program from the USDA awards grants with no maximum amount to small rural firms with no more than 50 new workers and $1 million in gross annual revenue for ventures that benefit rural towns.
What to Watch Out for With Free Grants
Although small business grants offer a viable source of funding to cash-strapped entrepreneurs, they often come with strings attached.
- Hard to find and get: First and foremost, finding and qualifying for free grants is often difficult. Even if you manage to find federal small business grants that are accepting applications, you’ll often discover that they impose stringent requirements. Grant eligibility may hinge on a number of factors, such as revenue, years in business, location, industry, and socioeconomic factors.
- Restricted use of funding: To complicate matters, small business grants sometimes establish rules regarding what you can spend the money on and how much you can spend on work of a certain nature. For instance, if you receive a grant earmarked for developing a new eco-friendly product, you may be required to spend the money on research and equipment rather than the raw materials you need to create the product.
- Taxation: With certain exceptions, such as disaster-relief grants, grants for small businesses are generally taxable to the receiver.
- No benefit to credit: In spite of the hurdles, grants don't help you build credit as you don't have to pay them back to the issuer.
- Scams: There are plenty of government grant scams to go around. Scam artists posing as grant-making agencies may claim to offer you a free grant if you only offer them a processing fee or your checking account to deposit the funds. Steer clear of scams by avoiding grants that ask you to pay to receive free money, keeping your bank account details to yourself, and verifying unknown phone numbers in a phonebook to ensure that they're associated with a legitimate government organization.
Legitimate government grant-makers will never ask you to pay a processing fee for a list of grants or to receive a grant for which you've already been approved.
Alternatives to Free Grants
If you're not willing to accept the challenges of small business grants, consider business loans. Granted, traditional bank loans are difficult in their own right for small businesses to get, and they come with interest charges and the risk of default and potentially ensuing damage to your credit unlike the free money provided by grants.
But loans generally aren't as scarce as more competitive grants, so you won't be in direct competition with other businesses for a limited pool of funds. Moreover, they help you build credit and typically offer greater freedom and flexibility to use the funds on business expenses as you see fit.
The Bottom Line
Free money is free money, and if you have the time, finding and applying for small business grants can help your business prosper. There are numerous grants available at the federal, state, and local levels, as well as from corporations. But remember: Grants come with strict requirements and can require a fair amount of effort to apply for and obtain. To win, ensure that your business is a good match for the grant and take care to provide complete and accurate information on the application.