The Truth About Grants

By Joshua Botello

The world of grants is a hazy one, especially for the uninitiated. To outsiders, grants seem to be free money floating around that people are willing to just hand over and are ridiculously easy to get, but difficult to find (unless you know where to look). If by some miracle, one of those previous statements might actually be true (uh, no), the world of grants and business financing is confusing and difficult. There is a lot of information and misinformation in the world, so let's dispel the myths and uncover the truth about grants.

But first...
What exactly is a Grant?

A grant is one of many forms of federal, state, county, city, corporate, or foundation funding. Within the federal government (the largest grant funder), Federal financial assistance is a broad term for the various ways the U.S. government distributes resources to eligible recipients. Simply put, a grant is any money that funds ideas and projects to provide public services and/or stimulate the economy. Grants do support critical recovery initiatives (like business affected by COVID-19), innovative research, and many other programs in all sectors or industries. 

Myth #1: There's a grant to start my business!

The short answer: No. The long answer: It’s complicated. As I mentioned before, the federal government uses grants to finance public services, innovative research, or stimulate the economy. Generally, grants are aimed at non-profit organizations to help communities or larger organizations to fund research.

Many grants that are available are Small Business Innovative Research (SBIR) or Small Business Technology Transfer Research(STTR) to startups who innovate or look to develop new technologies. It’s extremely rare, if not impossible, to find a grant that looks to fund or start up a salon or a convenience store. The Federal government is looking for more “return on their investment” so to speak, when it comes to the impact the grant is going to provide in a given community or area. Many grants also require the business or organization to be existing for a certain length of time before applying for the grant at all.

So to say there are grants to start my business is accurate, but with the caveats that: they are usually technology or research-based or they are a non-profits that benefits a community. 

Photo by Magnet.me on Unsplash

Myth #2: I Just Apply and Get it, Right?

Well, it’s not that simple. I mentioned federal grants usually are for servicing the community or for research, but there are corporate grants that may be right for certain applications.

Speaking of applications, the idea that there is a simple application or process to grants of any kind is a myth. While there are simple applications for certain corporate grants these don’t provide much in the way of money. In fact, some COVID-19 grants to help small businesses only required a simple application resulting in $1,000 awards but many were much less. There are competitions where the best grant proposals are awarded money, but these are for very specific uses. Did I mention these are also extremely competitive? This is a perfect segue to the world of grant writing.

Wait, there’s a whole world of grant...writing? Yep. For most grants, you start at a grant proposal. Simply put, a grant proposal is basically an essay and research --financial or otherwise, more on that later-- on why you deserve the grant. Grant applications come in all shapes and sizes. Generally, when writing grants there are four main components to the grant application:

• Grant applications usually require forms, certifications, and sometimes certifications of insurance.
• A grant application will require a narrative about the project and what you hope to accomplish.
• Grant application requests a budget to outline the use of funds.
• Fourth, and not always required, is letters of support from internal/external stakeholders. 

**Pro tip: Start with letters of support first because they often take the longest to receive and grant application periods are usually less than 30 days.

Grants are extremely hard work and there is a whole industry for grant writing and research to get money to fund projects. This is definitely not a cakewalk and not for the faint of heart.

Photo by Viacheslav Bublyk on Unsplash

Myth #3: It's Free Money!

Uh, no. Grants are definitely not "Free Money". Let me explain. While yes, grants are money that is handed over that doesn’t require repayment, but it’s not that simple. Many grants come with strings attached and reporting (more on that below). 

What? You mean I have to DO something? 

Yes, as I mentioned in the last myth, your grant proposal is how you are going to use the money, and when you initially look for a grant there are stipulations on how the money is supposed to be used.

For example, if you received a grant for helping low-income kids access nutritious meals, you will need to show how you will accomplish this in the proposal and what to show for it once you start spending the money.

The other caveat to the “Free Money” idea is the concept of cost matching. Many federal grants require matching funds for accessing grant funds. What does that mean? It means that to use funds awarded by the grant, it requires you to have the same amount of money to “pitch-in” to help fund your mission.

Matching is a provision for “non-federal” matching funds which means that the money must come from a source that isn’t another federal grant. This is usually some kind of private investment or fundraising that doesn’t come from another federal agency.

So, grants are hardly “free money”. They usually come with specific instructions on what to use the grant for and how to show the grants impact your organization's mission. 

Myth #4: Once I get the money, I'm free and clear.

Not so fast. If you made it up until now, you know there must be some huge and glaring exception. And yes there is: Reporting. I have alluded to it twice, but with grants, you need to show the money’s impact on your mission. Many grants will require you to report on results of how the money has helped the community (in the case of non-profits). However, that's not all.

Wait, it’s not?

Stay with me.

The other kind of reporting that will be needed for grants will be financial. Many grants will stipulate recordkeeping of the funds, such as tracking expenses, purchases, and the use of funds. All of this money will need to be meticulously tracked and accounted for. The other thing you need to worry about is compliance. Yes, the money can be used for the organization but with many grants, money needs to be put through a test before it’s ok to spend.

Wait, I've got to take a test too?

Kind of.

The test is to make sure that any use or expenditure is reasonable, necessary, and allowable. Having an agreement or memorandum of understanding is key when accepting grant funds. This helps make sure the funds are used correctly and all requirements are spelled out explicitly.

Grants are often very restricted in terms of what the funding can be used for and if you spend it incorrectly you may have to pay it back. Oftentimes it’s recommended to keep grant funds in a separate account to be able to track its uses.

Pursuing grants to fund your business or organization is a complicated process and is not for every business. If you are a non-profit, tech startup, or research outfit, then grants may be the way to go. However, if you are looking for financing for your for-profit business, a small business loan or private investment may be a better fit for your business. Is there another myth you have heard about grants that you want to be dispelled? Ask us down in the comments.

Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.