Federal Grants to Start a Business
Despite a great deal of advertising to the contrary, the U.S. government says it does not give grants to start businesses. "Don't believe the hype," says Grants.gov, the federal government's grants clearinghouse. Federal agencies are not permitted to grant money to individuals or groups to start for-profit businesses. While federal funding can help you get going, such funds usually are available only through low-interest loans in the way of federal formula grants from state agencies, or through emergency funds directly from the federal government.
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Why the Government Awards Grants
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The 26 federal agencies that award grants do so to meet a clear public interest, such as transportation, health and human services, disaster relief or infrastructure development. In addition, they do award grants for scientific, technical, defense, medical educational and other types of research and development for specific projects like flying submarines and vaccines for rare diseases. While these may be of benefit to a business or corporation, they are generally not available to startups, unless the government wishes to create a new business to address a previously nonexistent need.
Eligibility
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To receive any of the few grants available to for-profit businesses, these businesses must present proposals that demonstrate not only their competence to handle such a project, but also ideas and concept papers that may be quite expensive to produce. Winning such a contract can be lucrative, but if you don't win the grant, you also lose all the money you spent developing a proposal. This can be death for a startup business.
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Finding Federal Grants for Small Business
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The Small Business Innovation Research (SBIR) program of the U.S. Small Business Administration offers very specific grants for projects with stringent requirements, high qualification levels and stiff performance mandates. These can be found at the SBA's website or at Grants.gov. Grants.gov offers a grant alert newsletter that will send requests for proposals (RFPs) directly to your e-mail box in whatever area of interest you choose from all federal agencies. RFPs are grant announcements with links to downloadable applications, supplementary documents and complete instructions for how to fill out the application. Sign up for the grant alerts and follow them closely to determine if you are eligible for any grants that are announced.
Federal Formula Grants
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Formula grants are a special type of grant that only state agencies are eligible to receive. These grants divide up a congressional appropriation for a particular purpose by formula between state agencies. The agencies then pass these along to local nonprofits or to businesses (in rare cases), according to the guidelines they receive with the funding. Again, these funds are rarely for startups, except in cases where a development program seeks to build a business infrastructure in an underdeveloped rural area or high poverty community.
Disaster Relief
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The Federal Emergency Management Agency (FEMA) may make federal money available to states or directly to individuals and businesses to help with rebuilding in the wake of a natural disaster. This help is usually in the form of low interest loans, temporary housing or other support. FEMA money may help a business that's been destroyed get back on its feet, but is not available to start a new business.
Other Types of Funding for Businesses
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Often a federal agency makes funds available to states for certain kinds of development activities for undeveloped or impoverished communities. Such funding can be in the form of tax credits, low interest loans or technical support for companies building infrastructure projects like water, sewer, telecommunications or transportation infrastructure where none exists. Federal funds may provide a clinic for a young doctor to encourage him to set up in an unserved rural community, for instance. Again, such funds are usually in the form of loans or tax credits rather than direct cash. Affordable housing projects are often funded with tax credits provided to a nonprofit lead partner who then sells the credits to fund the construction. The for-profit developer then is paid by the nonprofit to build the houses.
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