Financing your future with small business grants

Small business grants offer access to capital that usually doesn’t need to be repaid. There are many options for small business owner populations, such as women, veterans, people of different backgrounds, and LGBTQ+ populations. However, finding and applying for a small business grant may feel intimidating. In this article, we’ll look at a few topics, including:

Researching and applying for funding takes time and effort, but the payoff can be worth it if you secure a grant for your small business. To help you get started, we’ve assembled resources to help you on your small business grant journey. Read on as we explore the world of grants for small businesses and answer the question, “How to get a small business grant.”

What is a small business grant?

A small business grant offers financial assistance to help businesses start, grow, or sustain their operations. Many sources award grants—including private and public funders—to support economic growth and are usually earmarked for a particular purpose or project. Unlike loans, many grants don’t need to be repaid as long as they are used for approved business expenses, making them an attractive option for small businesses.

Nuances and disadvantages: How are grants different?

Unlike other funding sources, a differentiator of grants is that they usually don’t need to be paid back. For this reason, they’re highly competitive. Moreover, they often have restricted use, amount limitations, or program agreements. Some grant providers have specific restrictions about what you must do to receive the grant and how you can use grant funds. If you do not use the small business grant funding as agreed upon, you may have to repay it. It is important to read your grant agreement carefully to know what you agree to when signing the dotted line.

An entrepreneur learning about small business grants

The grant research and application process can be time-intensive. It’s not generally something that you can quickly throw together. You’ll want to dedicate adequate time to thoughtfully prepare and submit the requested grant materials.

Small Business Grants and Taxes – Implications

The IRS considers most small business grants taxable income. Generally, you should report grant funding on your small business tax return. There are a few exceptions, so you may want to make an appointment with a tax expert to review your unique situation.

You may not need to pay taxes on your grant if:

  • You received the grant as part of a U.S. federal, state, or local COVID-19 relief programs
  • You are a member of a federally recognized American Indian tribe and you receive the grant to expand an Indian-owned business on or near a reservation
  • Your organization is a non-profit and holds 501(c)(3) status

A Block Advisors small business certified tax pro can walk you through grant tax considerations so you understand your tax reporting obligations. It is important to read the grant agreement closely to understand its terms and conditions. It may also include information on the tax implications. If you’re unsure if you’ll need to pay taxes on your grant, you can reserve some of the funding to cover the potential tax burden.

Keeping complete and accurate records of grant documentation is crucial. It will help with required grant reporting, as many funders will want to understand how you used the grant and ensure it aligns with its purpose. Whether you spend the grant on new packaging, sprucing up your retail location, setting up an employee payroll system, or other qualifying business expenses, consistent small is always a good idea.

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How can you leverage a grant to encourage business growth?

There are several ways to use a small business grant. Some grants have more restrictions than others on how you may use them. Carefully read your grant agreement to understand what expenses you can cover. Here are some popular ways to leverage grant funding:

  • Research and development (R&D): Some grants specifically fund R&D activities, like exploring new technologies, products, or services. Innovation can help your small business gain a competitive advantage in the marketplace.
  • Hiring and training: Many grants are designed to support hiring initiatives, incentives, and training programs to upskill current employees. These grants focus on creating a more talented workforce, which may increase a small business’ profit margins and efficiency.
  • Marketing: Need help with your business’s creative side? Look for grants that allow you to fund marketing and promotional activities. These grants aim to increase your small business’ brand awareness and reach new audiences. Online advertising, social media promotions, or promoting your business at events are valuable ways people put this category of grant money to work.
  • Expansion and Growth: A grant earmarked to support the growth of your small business can supercharge your path to success. Consider using the grant to bolster your expansion efforts, whether launching a new product, expanding your service area base, building an online presence, or something else.
  • Infrastructure and business equipment: Grants can help business owners invest in essential infrastructure upgrades or purchase new equipment. Investing in these foundational areas of your business may enhance productivity, streamline operations, and support business expansion. 
  • Sustainability initiatives: Are you trying to go green? Search for grants designed to support small businesses with environmental goals. These grants can help businesses implement environmentally friendly practices, like adopting renewable energy sources, improving energy efficiency, or reducing waste.

How to get a small business grant

Applying for a small business grant is usually a competitive process. It may include a lengthy submission, interviews, on-site visits, etc. The funder wants to be confident that their investment will go where needed most and will create an impact that aligns with their goals.

For this reason, it’s essential to be proactive, accurate, and thoughtful as you apply for grants. Each grant is different, but there are some common features across many small business grant application processes. These general steps can help you get started:

  1. Do your homework: Conduct an online search to identify grant opportunities aligning with your small business goals. You can also contact local and national small business resource groups – they often have grant directories to help point you in the right direction. (See below for more details on types of grants.)
  2. Check eligibility criteria: Review the eligibility criteria for each grant you’re interested in. Pay attention to factors such as business size, industry focus, geographic location, and any specific requirements related to the purpose of the grant. Make sure you and your business meet all the eligibility criteria before proceeding. Ensuring you qualify for a grant before applying will prevent you from spending time and effort on programs you aren’t eligible for.
  3. Prepare to share your story: Develop a comprehensive narrative highlighting your business’s goals, operations, financials, and growth strategy. Tailor your content to emphasize how the specific grant funding you are applying for will contribute to your business’s success. Show how you and your small business align with the grant’s objectives and explain why you should be selected.
  4. Wrangle the paperwork: Prepare the necessary documentation and information. Gather your small business’ financial statements, tax returns, legal documents, and any other documentation required by the grant provider. If you have questions about what is needed, reach out to the grant provider directly to ensure you include everything they need.
  5. Craft a compelling grant proposal: Write a clear and persuasive proposal addressing the grant’s criteria. Explain why your business qualifies for the grant, the specific project or initiative you intend to fund, and how it aligns with its objectives. Be concise, provide supporting data, and demonstrate the potential impact on your business.
  6. Review and submit: Follow the application instructions provided by the grant provider carefully within the grant’s deadline. Ensure you’ve included the required information and documents. You can even ask a trusted friend, family member, or peer to review your application and provide feedback before submitting it.

Small business grants span the gamut. Some grants may target specific industries, regions, or underrepresented groups, while others focus on promoting innovation, research, or social impact. Here are some of the popular grants for small businesses, broken down by common categories:

Small business grants for women-owned businesses

Federal/state small business grants

Minority small business grants

Corporate grants for small businesses 

Nonprofit foundation small business grants 

How to apply for small business grants 

Spend the time to make your business grant application as clear and compelling as possible, aligning your business mission and goals of the grant. As with many processes, following the steps is key. Consider these general steps as you apply for small business grants – many will follow this general format:

  1. Check eligibility: Review the grant criteria carefully and contact the grant administrator if you need clarification.
  2. Gather documentation: Follow the grant requirements to determine what supporting documents you need for your application. For example, the grantor might request a business plan, financial records, testimonials, or impact stories about your small business. 
  3. Provide basic business information: Submit additional business information requested. This often includes:
    1. Bank or financial statements
    1. Business contact information
    1. Business tax returns
    1. Business references
    1. Business plans
    1. Employer Identification Number (EIN)
    1. Organizational charts
  4. Apply for the grant: Today, most applications can be completed online. However, the application process takes time, so don’t rush it. It’s helpful to get a second set of eyes to review the grant application to ensure there are no errors and you haven’t skipped any steps or form fields.
  5. Be patient: The selection committee may take a while to review applications and decide on the grant winner. Look for details about the grant selection process and timing on the grant website and pencil important milestone dates into your calendar. If you have questions, look for a FAQ section to answer them. Most of all, ensure you respect the guidelines for contacting the grantor as outlined in the grant materials. Some groups don’t mind if you check in, but others may prefer to contact you directly first.

Small business grant success stories

Have you applied for several grants with no success? It can be discouraging to face rejection, but unfortunately, it happens. If you need motivation to keep going, we have stories from small businesses that have received previous funding.

In 2022, Block Advisors by H&R Block gave $5,000 microgrants and complimentary Block Advisors tax prep services to ten LGBTQ+ small business owners to support their growing small businesses. Virago Candle Studio owner Tyra Dizon Clark, Sleepy Hollow Handmade owners Tim and Joey Kapalo-Allen, Han Training owner Minky Kim, and Plantiitas owners Kevin Alcaraz and Anthony Diaz were a few previous grant winners selected by Block Advisors.

We hope reading these stories will inspire you to keep applying! Remember, every “no” is an opportunity to learn and develop the grit to push forward. When you finally succeed, it will be all the sweeter for the struggles you overcame on the path to success!

Other funding sources to consider

While grants are the first type of funding many small business owners go for, there are other options. You can diversify your funding strategy by exploring other financing options to support your business’s growth.

There are differences between grants, loans, private investors, friends and family, and crowdfunding. Each funding method has benefits and drawbacks, so carefully evaluate each source to understand the tradeoffs before deciding which avenues are the best for your small business.

Learn more about raising capital as a startup.

Get more small business help

While many details are involved with getting small business grants, plenty of resources are available to make the task easier. You can contact small business support communities like your local Chamber of Commerce and the Small Business Administration for guidance.

And when it comes to taxes, bookkeeping, payroll, business formation, and compliance, let Block Advisors help! Join the millions of small business clients who count on us. We’re here to help you get back to the tasks you’re most passionate about in your business.

Discover how Block Advisors can help your small business dream come alive.

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