A grant is a sum of money awarded for a particular purpose that does not need to be repaid. Grants are given by individuals or organisations, including governments; there are 26 government agencies that award grants in the United States. Grants can be awarded to people, businesses, educational institutions, or non-profit entities and are intended to fund specific initiatives.

Getting a grant for a startup is a smart way to secure funding without giving up equity. This guide discusses why grants can be beneficial to start-ups, how they compare to other sources of funding, and how to find and apply for business grants of your own.

What’s in this article?

• Why a start-up might need grant funding
  
• A comparison of funding sources
  
• Types of small business grants
  
• Government grants and resources for start-ups
  
• Private and non-profit business grants for start-ups
  
• How to apply for small business grants
  
• Who is eligible for business grants in the US?
  

Why a start-up might need grant funding

For start-ups, grants are a lower risk form of financing that doesn’t increase the organisation’s debt. Many grants provide networking opportunities, mentorship, and access to a community of like-minded entrepreneurs and experts. Securing a well-known grant can also lend credibility and boost the start-up’s reputation with investors, partners, and customers.

Here’s how start-ups might choose to use grant funding:

• Research and development: Grants can fund research and development – especially in sectors such as technology, healthcare, and green energy – where the initial investment can be substantial and revenue is likely not immediate.

• Product development: Start-ups often require substantial resources to develop and test new products. Grant funding can help cover these costs.

• Business growth: For start-ups looking to scale operations, enter new markets, or expand their team, grants can provide funding without diluting the founders’ ownership stake.

• Equipment and infrastructure: Purchasing equipment or investing in infrastructure can be costly. Grants can help cover these expenses.

• Training and employment: Some grants are designed to create employment opportunities, allowing start-ups to hire new employees and offer training programmes.

A comparison of funding sources

There are many ways to fund a start-up – and each has its own advantages and challenges. Let’s take a closer look at various funding methods and how they could benefit your business. The best funding choice depends on each start-up’s specific situation, industry, growth stage, and objectives.

Grants

Grants are usually awarded by governments, foundations, or corporations to support specific projects or initiatives. Grants do not have to be repaid.

• Equity requirement: None. Grantors typically do not take an ownership stake in the company.

• Repayment: Not required.

• Impact on cash flow: Positive. Grants provide funds without requiring start-ups to repay the grant or give up equity.

• Suitability: Best for start-ups focused on research, social causes, or innovation – or those entering industries where grants are commonly available.

Equity financing

Equity financing is the practice of raising capital by selling shares in the company.

• Equity requirement: High. Investors receive ownership shares, diluting the founders’ stakes.

• Repayment: Not required. Investors seek returns through dividends or increases in share value.

• Impact on cash flow: Positive. It brings in capital without immediate repayment obligations, but future profits are shared.

• Suitability: Best for start-ups that need substantial capital, are willing to share control, and are pursuing high growth.

• Examples:

  • Venture capital: Venture capitalists (VCs) are professional groups that manage pooled funds from multiple investors. They use these funds to invest in start-ups and small businesses with strong growth potential. As a condition for funding, VCs typically require equity and a degree of control over company decisions.
    
  • Angel investors: Angel investors are individuals who provide capital for start-ups, usually in exchange for ownership equity or convertible debt. These investors can also provide valuable mentorship and industry connections.
    

Debt financing

Debt financing is the practice of borrowing funds that need to be repaid over time with interest.

• Equity requirement: None. Lenders do not receive an ownership stake.

• Repayment: Required, with interest, according to a set schedule.

• Impact on cash flow: Can be negative in the short term due to repayment and interest obligations.

• Suitability: Best for businesses with the ability to repay and those that do not want to dilute ownership.

• Examples:

  • Loans: Traditional bank loans or lines of credit are common funding sources for start-ups. While loans need to be repaid with interest, they don’t dilute ownership. The application process often requires collateral and a solid credit history.
    
  • Government loans and incentives: Government loans, tax incentives, and support programmes promote entrepreneurship and can stimulate economic growth.
    
  • Peer-to-peer lending: Online platforms enable start-ups to borrow money from individuals rather than institutions, often at competitive interest rates. This can be a more flexible option than traditional bank loans.
    

Bootstrapping

Bootstrapping is the practice of funding a start-up with personal savings, early revenue from the business, or with a reduction in operating costs. It allows entrepreneurs to maintain full control, but it might limit how quickly a start-up can grow due to financial constraints.

• Equity requirement: None. The founder retains full ownership.

• Repayment: Not applicable.

• Impact on cash flow: Often negative, as the business or founder provides all funding.

• Suitability: Best for start-ups that want to maintain control and grow organically, or those that don’t have access to other forms of funding.

Incubators and accelerators

Incubator programmes can be more open-ended than accelerators. They provide resources, mentorship, and networking opportunities – without the same time constraints or a strong emphasis on an investment pitch as accelerators.

Accelerator programmes are fixed-term, cohort-based programmes that provide mentorship, education, and financing. Start-ups often receive seed investment in exchange for equity. The programmes typically culminate in a public pitch event or demo day for investors.

• Equity requirement: Moderate. Accelerators receive ownership shares in exchange for the funding and training they provide.

• Repayment: Not required. Accelerators seek returns through dividends or increases in share value.

• Impact on cash flow: Positive. Accelerators provide capital without repayment obligations.

• Suitability: Best for start-ups that need a small amount of funding, are willing to share control, and desire mentorship and training.

• Examples:

  • Y Combinator: Y Combinator is an accelerator that provides a small amount of seed funding for start-ups and works with founders to bring their ideas to fruition.
    
  • Techstars: Techstars is an accelerator and pre-seed investor that provides young start-ups with capital, mentorship, and support.
    

Other types of fundraising

• Family and friends: Raising money from family and friends is a common early-stage funding strategy. However, while it can be a faster and more flexible source of funds, it can also risk straining personal relationships if the business does not succeed.

• Product pre-sales: Selling your product or service before it is fully developed can provide the cash flow needed to fund production and demonstrate the market demand for your product.

• Strategic partnerships: Working with established businesses can provide start-ups with financial support, resources, and access to a broader customer base. The established business might seek a strategic advantage or innovation in return.

• Crowdfunding: Platforms such as Kickstarter, Indiegogo, and GoFundMe allow businesses to raise money by soliciting smaller investments or contributions from a larger number of people. This method can also serve as a marketing tool by generating advance public interest in the start-up’s offerings.

Types of small business grants

Small business grants come in different forms, each with specific objectives and eligibility criteria.

• Federal grants: Multiple federal agencies offer grants to support small businesses involved in research and development, technology innovation, and other activities that are important to national interests. Examples in the US include grants from the Small Business Administration (SBA), National Science Foundation (NSF), and the Department of Energy (DOE).

• State and local grants: State and local governments award grants that often focus on economic development in a particular region. They might encourage businesses to locate in underserved areas, create jobs, or contribute to local economic growth.

• Industry-specific grants: Some grants target businesses in specific industries such as health care, education, technology, or agriculture to stimulate innovation, research, and development.

• Minority-owned business grants: These grants support businesses owned by individuals from specific marginalised groups to promote diversity and inclusion.

• Women-owned business grants: Grants for women-led or owned businesses address the funding gap and empower women entrepreneurs.

• Veteran-owned business grants: These grants fund businesses owned by military veterans, acknowledging their service.

• Green and environmental grants: Environmental or “green” grants are available to fund preservation and sustainability initiatives.

• Non-profit organisation grants: Grants are also available for non-profits that focus on community service, social change, or charitable work.

• Competition and challenge grants: Some organisations offer grants through competitions or challenges where businesses submit proposals or projects. The winners receive grant funding.

• Matching grants: After a business raises funding on its own, the grantor then matches the amount raised, usually up to a certain amount.

• In-kind grants: These grants offer resources, services, or equipment that the business might need rather than direct funding. This can include software subscriptions, consulting services, or office space.

Government grants and resources for start-ups

In many countries, the government provides a range of grants and resources to help start-ups and small businesses succeed. Along with direct funding, many governments have free or subsidised advisory services for start-ups that offer guidance on business planning, marketing, and compliance. Many countries also have publicly funded entrepreneurial training available for start-up founders and their teams. Government-sponsored incubator and accelerator programmes can provide mentorship and funding opportunities. These public programmes typically have specific goals related to innovation, local economic development, or exports.

United States

• Small Business Innovation Research (SBIR) programme: The SBIR programme supports scientific excellence and technological innovation with federal research funding.

• Small Business Technology Transfer (STTR) programme: The STTR programme is similar to the SBIR programme, but it requires the small business to collaborate with a research institution. This programme encourages scientific researchers to develop practical, market-ready applications.

• Economic Development Administration (EDA): The EDA offers grants to promote regional economic development efforts.

• State Trade Expansion Program (STEP): STEP provides financial awards to state and local governments to help small businesses build their export capacity.

• Rural Business Development Grants (RBDG): The US Department of Agriculture provides small businesses in rural areas with Rural Business Development Grants to help them grow.

• Minority Business Development Agency (MBDA): The MBDA offers grants and resources for minority-owned businesses.

• National Institutes of Health (NIH): The NIH sponsors grants for pharmaceutical, scientific, or biotech start-ups.

United Kingdom

• Innovate UK: Innovate UK offers grants for businesses to develop innovative products, processes, and services.

• Seed Enterprise Investment Scheme (SEIS): The SEIS provides tax breaks for individual investors who buy new shares in your company, allowing start-ups to raise up to £250,000.

• Enterprise Investment Scheme (EIS): The EIS encourages investment in small businesses by offering tax relief to investors, helping early-stage businesses raise up to £5 million each year and a maximum of £12 million over the company’s lifetime.

Canada

• Industrial Research Assistance Program (IRAP): The IRAP provides funding to qualified small or medium-sized Canadian businesses to support technology innovation projects.

• Strategic Innovation Fund (SIF): SIF invests in large-scale, transformative, and collaborative projects that position Canada as a global innovation leader.

• Canada Small Business Financing Program: The Canada Small Business Financing Program helps small businesses obtain loans from financial institutions by sharing the risk with lenders.

Australia

• Research and Development (R&D) Tax Incentive: The R&D Tax Incentive encourages industry investment in research and development for projects that could benefit the Australian economy.
  

Private and non-profit business grants for startups

Large corporations, industry-specific organisations, and philanthropic foundations also offer start-up business grants. While private grants can offer substantial funding, they are competitive and the application process can be demanding. They’re a good option for start-ups with a clear vision that aligns with the grantor’s goals, and they can provide the opportunity to build credibility and gain industry contacts.

• Corporate grants: Many large corporations provide grants to start-ups, often as part of corporate social responsibility (CSR) initiatives or to promote innovation in relevant industries.

• Industry-specific grants: Some grants support start-ups in particular industries such as technology, health care, or renewable energy.

• Non-profit grants: Many non-profit organisations also offer grants to support start-ups in areas such as social causes, environmental initiatives, or community-based businesses.

• Competition grants: Some private entities host competitions or challenges. Start-ups pitch their ideas, and the winners are awarded funding and resources.

How to find grants

• Online databases and grant-finding platforms: Websites such as GrantWatch, Foundation Center, or industry-related platforms share information about available grants.

• Networking: Industry events, conferences, and seminars can provide opportunities to learn about and connect with potential grantors.

• Social media and industry news: Many organisations announce their grant programmes through social media or industry outlets.

• Direct contact: If your start-up supports a company or non-profit’s mission, you can reach out directly to ask about potential funding opportunities and learn about grants that are not advertised.

Applying for grants

• Eligibility: Carefully review the eligibility criteria to confirm that your start-up qualifies for the grant before investing time in the application process. Focus on grants where there’s a strong alignment between the grantor’s goals and your start-up’s mission or industry.

• Proposal: Grant proposals typically require you to provide details on your business model, goals, target market, financial insights, and how you plan to use the grant. Your proposal should be concise and compelling, clearly articulate how the grant will help your business, and demonstrate how the grant will impact your start-up’s success and further the grantor’s mission.

• Documentation: Be prepared to provide documentation such as business plans, financial statements, and tax returns.

• Pitch: Some grants require a pitch either in written form or as a presentation to a panel. This is especially true for competition-based grants.

• Persistence: Applying for grants can be competitive and time-consuming. Persistence and a willingness to apply for multiple opportunities can increase your chances of success. It’s also worth asking for feedback on any rejected applications to inform your future applications.

How to apply for small business grants

Applying for small business grants can take some time, but it will ultimately pay off if your company receives funding. Here’s a look at the application process.

Research and identify potential grants

• Grant websites: Use government databases, industry groups, and grant-specific websites to search for grants that apply to your business sector, size, and goals.

• Requirements: Carefully review the eligibility criteria and objectives of each grant to confirm that your business qualifies.

• Objectives: Make sure your business’s goals and the project for which you’re seeking funding align with the grant’s objectives.

Gather your documents

Business plan: Update your business plan to reflect your current and future goals, strategies, and financial projections.

Financial records: Organise your financial statements, tax returns, and any other financial documents that may be required.

Legal documents: Make sure all your business registrations, licenses, and legal documents are current and easily accessible.

Create a detailed proposal

• Instructions: Each grant application comes with its own set of instructions. Follow these guidelines meticulously, including all formatting requirements.

• Project description: Clearly outline the project or your business initiative, your goals, metrics to gauge success, timeline, and expected outcomes.

• Projected budget: Provide a detailed budget that itemises how you plan to use the funding. Be precise and justify each expense.

• Impact: Explain how your business or project will contribute to the grant programme’s overall goals.

• Business story: Explain your business’s mission, history, and achievements. Be sure to emphasise what sets your business apart and how it contributes to its community or industry.

• Problem and solution: Describe the problem or need your business or project addresses, and how the grant will help you solve it.

• Careful review: Check your application for clarity, grammar, and accuracy. Make sure it’s professional and free of errors. If possible, have a mentor, advisor, or colleague review your application to provide feedback.

Submit your application

• Deadlines: Make sure to submit your application before the deadline. Grantors usually don’t consider late submissions.

• Receipt: Confirm that the grantor organisation has received your application. Follow up if necessary to confirm.

Prepare for follow-up

• Grant review: Be prepared to answer questions, be interviewed, or provide additional information if requested by the grantor.
  

Who is eligible for business grants in the US?

Eligibility for business grants in the US varies depending on the specific programme, the funding source (federal, state, or local government or private entities), and its purpose. To be eligible for any grants, businesses must comply with federal, state, and local regulations; tax laws; and any industry regulations, and they must be properly registered and licenced.

The best way to determine your eligibility is to carefully review each grant’s criteria to assess whether your business fits. Grants might assign criteria based on ownership (e.g., woman-owned, veteran-owned), industry (e.g., healthcare, technology, agriculture), or objectives (e.g., environmental sustainability, community development).