Guide to Startup Business Grants: Get Free Money for Your Business

On paper, grants sound like the perfect funding option for most small businesses. After all, grants give you money to spend on your business―but unlike loan money, you never have to pay it back. What’s not to love?

Well, as great as grants are, they do have some downsides. But should those downsides stop you from applying?

In this guide to startup business grants, we’ll help you decide. We’ll show you how grants work (the good and the bad) and tell you how to find grants for your business. We’ll also point you toward some alternative financing options, in case grants don’t work out for you.

If you didn't know what a startup business grant is, it does just what it sounds like. It grants funding to startups, small businesses, or nonprofits—and the funding comes from an organization or the government. Although this sounds great, competition for grants is fierce.

Let's look at some more pros and cons to help you see if they're the right fit for your business. 

As we already said, grants give money that you don’t have to repay. That means you’re getting free funds for your business.

Of course, actually getting and using those funds can get a little more complicated. Here’s what you need to know.

If you want to get a startup business grant, first you need to find a grant to apply for.

Maybe you already have one (or more) in mind. In that case, you can skip ahead to the next step. If you don’t, it’s time to start looking. We have some tips on where to look (which we’ll come to in just a bit).

Remember, though, that you’re not just looking for any grant. You’re looking for a grant that you can use for your business. Most grants specify how the funds can be used. So if you want to buy equipment, for example, don’t bother with grants that have to be used to hire more staff.

Once you think you’ve found a grant, it’s time to take a closer look at the application requirements.

Most grants require applicants to meet certain eligibility requirements.

For example, the grant-giving organization might require you to have a for-profit business. The requirements can get much more specific than that though. Take the Asian Women Giving Circle Grant. Applicants must be Asian American women with a nonprofit in New York City.

So before you start an application, make sure you and your business meet all the relevant requirements for your grant of choice. Otherwise, you could waste time on a grant you’ll never get.

Now, the good news is that most grants stick to demographic qualifications or industry qualifications―things about you or the area you work in. They don’t, however, usually care about things like your personal credit score. Likewise, you won’t find too many grants that have strict revenue or time in business qualifications.

That means you can often qualify for grants even if you can’t qualify for business loans―making grants great for startup funding.

When you’re sure you qualify for the grant you want, you’re ready to begin your application. After all, grants don’t get handed out willy-nilly to anyone who wants them―you have to win them.

Depending on the grant you’re applying for, the application can range from answering a few basic questions about your business to very involved essays, videos, and budget proposals. In other words, you should plan on investing some time in your grant application.

That said, you should consider how involved the grant application is and compare that to the grant award amount. It may be worth pouring hours and days into an application for a $60,000 grant―but you might not want to invest that much time in a $1,000 grant.

If you’re lucky, you’ll win the grant.

Congratulations! You got free money. That doesn’t mean you can spend your grant money however you want though. Most grants earmark the funds for certain uses. (Fortunately, they tell you about those uses upfront.)

As you spend your grant money, make sure you use it on those designated uses. If you don't, you could end up on the hook for repaying your improperly used funds.

Now that you know how to get a startup business grant, how do you actually find one you want?

Mostly, you’re going to have to put in some time and effort to look.

As we said earlier, we suggest looking locally if possible. Ask around at local small business development centers, business expos, and other places.

But yes, you can look online too. That’s how we found some of our favorite grants for startup businesses.

Another good place to look is grants.gov. It lists all current government grant opportunities.

And you can always look at grants for special groups.

While business lenders can’t choose to give money only to certain groups―like women, veterans, or minorities―grant programs can. So if you’re in one of those groups, look for grants targeted at you.

If you’re a female business owner, you can check out our roundup of the best small-business grants for women. Some opportunities are open to all female entrepreneurs, while others get more specific.

If you’re a minority business owner, there are grants just for you. We have a list of the best business grants for minorities to get you started.

And if you (or your spouse) served in the US military, you might be able to qualify for grants for veterans.

Before we wrap this guide up, we want to pause for a brief reality check.

Grants are great, and we highly recommend applying for them―but realistically, you can’t count on getting grant funding. (Sorry.)

Startup business grants are very, very competitive. Even if you have the best application, you can’t guarantee that you’ll win a grant.

With that in mind, we want to suggest some other business financing options you can look at.

Unlike grants, you have to repay small-business loans. But if you need working capital, you may find that loans are worth the cost.

As a young startup, you’ll have somewhat limited options for business loans. Traditional lenders (banks) won’t even look at you.

You’re better off applying with online lenders, like the ones on our list of the best small-business loans for startups.

Enter your loan needs and qualifications to get matched with a list of lenders best suited to you. Then, sort by the financing factor that you find most important. (Note: not all lenders allow personal loans for business use.)

Crowdfunding offers another way to get free money for your business. In most cases, you don’t have to repay the funds you get through crowdfunding (though you’ll probably have to reward your backers somehow).

Plus, you can crowdfund even with a very young startup. Just keep in mind that crowdfunding tends to work better for product-based businesses rather than service-based businesses.

Our guide to crowdfunding for startups explains how you can get started with crowdfunding platforms.

You’ve got more financing options than just grants, loans, and crowdfunding. Here are some other popular funding methods:

• Borrowing from family and friends
• Personal assets
• Angel investors
• Venture capitalists

Startup business grants can be a great way to fund your business, since you don’t have to repay the money and you don’t have to meet any credit requirements. But grants often have involved applications and competitive applicant pools, so they’re not right for every small-business owner.

If you can find relevant grants that don’t take too long to apply for, we highly recommend submitting an application. Just remember you can’t count on grant funding―so make sure you have a backup plan.

Interested in other funding options with no (or low) credit requirements? Check out our rankings of the best bad credit startup loans.

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