Business grants are monetary amounts that are provided to businesses by other organizations or government agencies. Usually, these grants do not have to be paid back.
Most grants, however, do come with certain requirements. For example, the business may be required to use the grant money for purposes that are specified by the donors.
Grants are similar to loans with the exception that they generally do not have to be paid back and they are used for a specific purpose.
What Are Small Business Grants?
When small businesses start off, there are many that will require some sort of financing option in order to assist with their expenses, especially when they are starting up. For example, many small businesses open after obtaining some type of small business loan.
Small business grants are similar to loans except that they do not have to be paid back. Typically, they are an amount of money that is allocated for a specific purpose.
In other words, an individual most likely could not run their entire small business operation on a grant. They would likely need to supplement with other types of financing, such as a loan.
What Are the Advantages of Small Business Grants?
One of the main advantages of a business grant is that it is basically free money. As noted above, the grant does not have to be repaid.
This makes them very appealing for businesses, especially small businesses. In addition, depending on the ideas of the applicant, there are some grants that may offer significant amounts of money.
Small business grants are usually relatively easy to find on the internet. If an individual does some research up front, they can determine what grants they may qualify for and which they would be most likely to receive.
What Are the Disadvantages of Small Business Grants?
Although obtaining free money to fund a business sounds great, it is important to keep in mind that there can be some disadvantages. The eligibility for these grants can be very strict, meaning that if an individual overlooks a disqualifying fact, they may have wasted their time on the application.
Federal and state grants also have strict rules attached because they are funded by taxpayer dollars. In contrast to a traditional loan, these types of grants are not provided for:
- Starting a business;
- Paying off debt; or
- Covering basic operating expenses, for example, payroll costs.
Applying for small business grants can also be very time-consuming and require a large volume of paperwork. A small business owner, especially a solo small business owner, may not have the time to complete the large volume of paperwork required or have the funds available to hire someone to help them.
It can take a relatively long amount of time for a small business grant to be approved. A small business owner may have to wait weeks or months to find out if they have been approved for the small business grant.
There can also be a lot of competition to obtain a small business grant. There may be hundreds or thousands of businesses trying to obtain the same grants.
Small business grants may require regular updates and progress check ups on a business. This may require monthly or quarterly check-ins.
How Can Small Business Grants Be Used?
In the majority of cases, the party that is issuing a grant may attach certain conditions to the grant, for example, only using the grant for a specific purpose. For example, a grantor may specify that the grant money has to be used for:
- Research and development;
- Advertising and promotion of the grantor’s interests;
- Charity and non-profit related works; or
- Various other aims as specified by the grantor.
The conditions of the grant will depend on the party providing the money. In certain cases, there may not be any conditions attached at all, depending on the agreement between the parties.
What Should Be Included in a Business Grant Contract?
In most cases, when transferring a grant to a business, a contract or other legal document must be created that records the transfer. This business grant contract should contain certain important issues, such as:
- Which parties are involved;
- How much money is to be transferred;
- When the money is to be transferred;
- Whether the small business has to use the finds for a specific purpose;
- Whether there will be consequences if the funds are used for a different purpose; and
- Other relevant information, including:
- whether the grant is renewable;
- whether it will be paid again the following year; or
- whether it is a one-time transfer.
Business grants are not the same as gifts. Most gifts do not come with conditions attached.
As discussed above, however, most grants are subject to conditions. The conditions should be outlined clearly in the contract document so there will be a written record of the guidelines for how the grant money should be used.
Where Can I Obtain Small Business Grants?
The majority of small business grants originate from state governments or state-funded entities. The federal government does not commonly issue small business grants, except for limited purposes such as promoting tourism or other specific interests.
In addition, private companies may also issue grants for small businesses.
What Does a Typical Grant Scam Look Like?
It is important to be aware that there are scams related to small business grants. They will commonly appear in classified ads.
The applicant may be asked to call the toll-free number provided and answer a series of questions to determine their eligibility, in an attempt to make the company appear legitimate. Applicants may be asked to pay a grant processing fee.
The applicant may be informed that their grant is guaranteed and a refund will be available, although they are never told how to obtain one. In many cases, the applicant will simply lose the processing fee they paid and never receive any grant funds.
Because of these issues, it is important to research any potential grants. An attorney can help with this type of research and ensure that a grant is legitimate.
What if I Have a Dispute Over a Business Grant?
Disputes commonly arise related to business grants over the use of the funds. In many cases, specific instructions will be provided regarding how the funds can be used.
This will most likely be outlined in the contract that transfers the funds. If the terms of the grant are not followed, the recipient will typically lose their grant, which may have negative impacts on the business reputation of the company.
There may also be situations in which the grant or a part of the grant must be repaid. For example, if a small business owner was over paid with grant funds.
In the majority of cases, legal action must be taken to fully resolve these issues. It may be necessary for one party to file a lawsuit in order to obtain reimbursement for the losses that were caused by the breach of contract.
Do I Need a Lawyer for Help with Small Business Grants?
If you are interested in obtaining a small business grant or are in the process already, it is important to consult with a small business lawyer. These types of grants often involve lengthy and technical contracts.
Your lawyer can help you understand these contracts which may last for many years, as the funds are distributed in intervals over time. Your lawyer can advise you of your options related to the grant contract as well as represent you in court if a legal dispute arises related to your contract.