Exploring Eligibility: Can Small Businesses Receive Federal Grants?

Let’s say you’re a small business owner looking to build out your enterprise. You’ve looked into loans from private lenders. You’ve spoken with investors. Recently, in a Google search, you stumbled across an article heralding the availability of government grants for small businesses.

You wonder: “Does the federal government really award money to people running small businesses?”

As we have written before on this blog, federal grants are designed to benefit the public by funding pre-approved programs and projects. So for a commercial business to be eligible for a grant, it would need – first of all – to qualify for a specific public program or project defined by Congress.

Additionally, the Small Business Administration (SBA), an authority on this topic, states, “The government (federal or state) does not provide grants for any of the following activities: starting a business, paying off debt, or covering operational expenses.” So, most businesses simply do not meet the criteria for grant programs.

But I’m looking for funding to help with research and development (R&D)…

If this is the case, you could be in luck. The federal government does have grant programs to support R&D by small businesses. One example is the Small Business Innovation Research (SBIR) Program that is overseen by the SBA and a range of other agencies.

It’s important to remember, though, that the R&D must align with a government interest that will be outlined in a funding opportunity announcement. Browsing the SBIR open and recently closed opportunities listings will give you a sense of the R&D the federal government is interested in funding: aerodynamic missile domes, insulation for solid rocket motors, software assurance tools for cyber security, and expeditionary medical refrigeration unit – just to name a few.

So the SBA does not provide grants to launch a business or cover operational expenses?

Correct. The only grants the SBA offers are for non-profit and educational organizations that provide counseling and training. Congress does not give the SBA the authority to make grants to small businesses.

However, the SBA does administer loan programs for small businesses. These programs support a range of activities, including starting a business, growing a business, exporting goods, recovering from a disaster, and more.

Note that the SBA does not lend the money directly to the small businesses: “Instead,” the SBA website explains, “[the SBA] provides a guarantee to banks and lenders for the money they lend to small businesses owners. This guarantee protects the lenders interests by promising to pay a portion of the loan back if the business owner defaults on the loan.”

Are there any other government bodies that provide grants to small businesses?

You do have a few other options to explore, although you will need to focus your attention at the local level – with state and city governments. Federal funds are sometimes awarded to state and city governments to be allocated at the local level for specific purposes. Examples identified by the SBA include “grants for expanding child care centers, creating energy-efficient technology, and developing marketing campaigns for tourism.”

There are also some grant opportunities available for women- and minority-owned businesses through the Minority Business Development Agency, which is under the Department of Commerce. These grants are designed to encourage and support business development among certain minority groups. Small businesses that do not qualify will not be eligible to receive such grants.

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