Most entrepreneurs need some type of financial assistance to get their businesses off the ground. Small business loans and grants provide great opportunities, but where do you start and how do you know which grants you qualify for?
What is the difference between a loan and a grant?
Loans can be approved from certain government agencies and other private parties. While the government doesn’t lend directly to small business owners, they will fund private and commercial institutions in support of these entrepreneurs. Loans require the borrower to return the money with an agreed upon interest rate based on the sum obtained and the amount of time that it takes to pay it off. Also, personal information about the borrower will be required including credit history and income which will ensure to the lender that you will be able to pay back the loan.
The government has set aside millions of dollars to aid small business owners. To qualify for these grants, one has to first meet the basic criteria including being over 18 years old and having citizenship in this country. There are hundreds of grants available each with their own requirements and specifications that vary by industry.
The most important part of this process is creating a grant proposal. Your current income and credit reports are not major factors, but you will have to indicate detailed plans for your business including how you intend to obtain additional funding, how many employees you aim to hire, what the funds will go towards, etc. The best part about a grant is that you don’t have to pay back the money you receive.
Where do I start?
Check out the U.S. Small Business Association’s website. The government offers many financing options for small business owners to borrow money including debt financing (the SBA partners with lenders and ensures that your loan will be paid back), surety bonds (for small business contractors who cannot obtain surety bonds through regular commercial channels), and its venture capital program (which helps to fill the gap between the availability of growth capital and the needs of small businesses).
There is even a tool on the website called the “Access Financing Wizard” which can guide you to government resources where you can research loans or grants for your business.
Other great websites include business.gov and grants.gov which feature every grant or loan funding opportunity offered to businesses from the United States government. Business owners can check the details of each grant in order to determine whether or not they would be eligible for those grants and then fill out an application for the grants on business.gov. This website updates new grants as they are made public and removes ones that are no longer available.
How do I apply for a loan or a grant?
If you are applying for a small business loan, get copies of your credit report, recent financial statements, and your company’s accounts payable and accounts receivable. Next, create a 12-month profit and loss projection. You’ll then need to write an executive summary which is basically your cover letter. It should include your business background, a short description of your business, the amount of money you’re requesting, what you intend to use it for, and how you intend to pay it back. Your next plan of action will include writing a business profile which is the detailed version of your executive summary. If this is a government loan, you’ll also fill out SBA Form 4 and SBA Form 413.
If you’re looking into applying for a small business grant, go back to the SBA’s website and look to see which ones you qualify for. The best way to apply for a grant is online. It will be much faster due to the fact that these sites include step-by-step instructions as well as a FAQ section. You’ll then be given a Funding Opportunity Number for identification purposes and will also prove helpful if you are applying for more than one grant. Next you’ll need to write and submit a grant proposal letter and a business plan similar to applying for a loan.
Writing a proposal or gathering all of the appropriate documents can be a daunting task. A small business lawyer can be worth the investment to ensure that you have included the correct information in your proposals and that you qualify for the grant in the first place. With something as important and beneficial to your company as a loan or grant, you’ll want to create a flawless application to get the funding that may be crucial for your startup company.