Business Grants: Dispelling the Urban Myth

When people find out that I write grants for a living the response is predictable. They get excited, so much so that that they usually have to collect themselves and pan the room to make sure they have not disturbed anyone else. (smile) It’s as if they had discovered a long lost relative – that is now a Texas Oil Baron (Read: Iraqi Oil Baron)

By far the most popular response to finding out my line work is to ask “do you know of any grants for establishing or expanding one’s business?” This question is the bane of my existence and is the reason why I’d prefer to be vague about the nature of my work when encountering strangers. You see, there is only one real answer that any nonprofit consultant that is engaging in grant writing can give to those inquiring about business grants – “no, I don’t know of any, they don’t really exist”.

Now I know what you’re thinking. You know a guy that knew a guy that got a business grant back in 2002 or what it 1997? Either way, you’re sure he got it and the story goes that his business burst its seams in growth after this handy infusion of cash. Well, I hate to be the bearer of bad news, but your friend of a friend probably didn’t get a business grant. How could I possibly know this without knowing him or his situation? The truth lies in the definition of “grants.”

A Grant is usually an award of cash, equipment, building or land. This award is always given to a non-profit entity for the purposes of serving the disadvantaged. Grants are almost never awarded to individuals. The exception would be educational grants which are awarded to students, staff at educational institutions and researchers. These individuals are given grants to either advance their educational goals or perform concentrated study to a particular problem or scientific quandary. But these individual grants represent a highly completive analogy – a process that most of us are not eligible to participate in.

Mainstream grants on the other hand are more plentiful – running in the billions of dollars from federal, state and local governments, as well as private family and corporate foundations. This money is available to address nearly every single aspect of the human condition. The catch is that these dollars are not available to individuals. To access this monies 9 times out of 10 you have to state recognized, IRS designated tax-exempt agency organized for charitable purposes. In most cases this means obtaining 501c3 status, which is the most common designation for an organization formed to address public need. There is a small exception here too – faith-based organizations, temples, churches, mosques, synagogues etc. are automatically considered tax-exempt. But it doesn’t change the fact that each individual benefactor – or funding sources – can develop its own guidelines for applying for and receiving grant money. 99.99% of the time this means that faith-based organizations and congregations must also have 501c3 status.

Obtaining government recognized tax-exempt status can be a laborious process. It begins with filling out paperwork with your state government, identifying and assembling a board of directors (usually at lease 3 non-relatives), filing articles of incorporation and establishing by-laws. Then there is the IRS application which has grown 3 fold in size and complexity in the last six years. When it’s all said and done, obtaining tax exempt status can take anywhere from 3-7 months. In the meantime, you can obtain a letter from your state and the IRS that indicates that you have applying and are waiting to hear back. A major drawback to becoming a government recognized non-profit with tax-exempt status is that your “baby” is now a ward of the state. Your organization, its computers, its wonderful copier, the van that you use to transport people, the building and all of the pens and erasers are now considered public property, of which you are only a steward. Should you dissolve the nonprofit, you couldn’t take back that van. In fact, you can’t even buy back the van. You would be guided through a process by your state government that would allow you to sell or transfer ownership of assets to other nonprofits or to the government.

The leaders of nonprofits, no matter how important to the founding of the organization don’t possess sole control of operations either. That board of directors that you assembled is now your collective boss. And they can stop any action that you take if they deem it not in the interest of the public. This can include changing your salary, not approving new hires, dictating how much you can pay to lease or rent office space, etc. As far the IRS and the state is concerned, that board has fiduciary control – you, as Executive Director or CEO are merely an employee.

Although I’ve only began to scratch the surface, you can see that there is quite a bit of difference between operating a nonprofit agency and operating a small or mid-sized business. But how does all of this prove that there is no such thing as a business grant?

Well, businesses do not have tax-exempt status. They also do not have to established to serve a public need or meet charitable goals. Furthermore, they do not sell or transfer their assets to their “competitors” upon their dissolution. If you are small business owner, all of your business assets remain yours if your business folds. Most importantly, businesses do not answer to community will. They only follow law as their gauge to activities and conduct.

Grants require that the recipient be held accountable to the needs and condition of people. If you are given a grant for $10,000 and you promise to provide housing for 3 families you’d had better reach that goal or you will be deemed a failure. (All grants are outcome based. These outcomes are based on social stabilization, not profit margin.) Grants also require that you provide all your funders with full access to your financial documents. They can even tell you who you can use as an auditor, when your annual audit must be done and where you can spend the money. (For example, some foundations may say “you can only buy copy paper from these two vendors.”)

Grants also require that you provide service without consideration for profit. You can implement a program that requires participants to pay a fee and that in turn might generate revenue, but the service and the quantitative and qualitative change that the participant experiences is the focal point – not the revenue.

Another fundamental difference is that as a business grows, your income also increases and can exceed local or national averages, if your work and output does as well. With grants, your salary is still fixed to salary surveys that take into the nature of your work, the region you serve, your educational and work experience. Grants are implemented with the “biggest bang for the buck mentality” so funders will usually go with the entity that serve the most people, with the smallest staff, the most conservative payroll and the least amount of equipment and supplies. In business, some of this is true; but at least you can make cost of living adjustments, cost of living changes and regular raises. In the nonprofit community most foundations will not cover these increases unless they have worked with you for years. What would be a straight forward way to retain and reward employees based on performance in profit centered work is really difficult to maintain with grant money.

We have another weapon in our investigation into the “myth of business grants”. Its called human logic. Why would the federal government make nonprofits go through mountains of paperwork, regulations, site visits and follow-up evaluations to serve the community, but in turn just to give money away freely to individuals who would in turn operate business that only enrich themselves? If 99% of grants around technology require an evidence-based curricula that is administered by an expert, would it make much sense to give an individual with no training, no credentials and no obligation to the public enough money to buy a computer?

You and I both know that the government doesn’t give anything away for free. (I don’t even have to explore the possibility of corporations giving money away do I?) Now, I know what you’re feeling. It’s all starting to make sense now and maybe you’re feeling a little down. Chin up buddy, it’s going to be alright. (smile) You’ve been duped, but haven’t we all at one time or another? But thankfully logic was there to make it all clear.

Even the Small Business Administration (SBA) gives very little grant money. In all cases these grants do not go to entrepreneurs, but rather to nonprofit agencies that provide services to entrepreneurs. For example, a nonprofit might receive a grant from SBA to provide business plan development classes, or financial literacy or to support incubators. In some cases the SBA may supply a nonprofit with grant money, which the nonprofit can then dole out to entrepreneurs that complete training programs. This money is usually a loan and in some cases is a forgivable loan or grant that the entrepreneur does not have to pay back (it’s protected from default by additional government money). But this money is far and in between and matches its moniker – micro-enterprise loan. A micro-enterprise loan might be between $500-5,000. Occasionally, it might be as much as a $1 Million – but these program focus on businesses are established and on the cusp of becoming large businesses because of some industry innovation or invention that they have created. Or perhaps the success of the business has the potential to push the development of a city or an underserved community. However, these grants are often non-competitive, so they will not be listed or advertised. The recipients will be hand-picked by politicians or private funders. The risk involved with this kind of money is enormous, so it makes sense.

The average micro-loan is probably less than $2,000 and will go almost exclusively to supplies, small equipment and maybe legal and consultation fees needed by budding entrepreneurs. Not a windfall, but nothing to sneeze at either. It makes a nice match when you go into a traditional bank for a loan. Micro-enterprise programs also help you develop your business idea and introduce to you other business owners that might be critical to success, all while maintaining a non-competition agreement, and so your idea remains safe.

All in all, business grants that put money directly in the hands of entrepreneurs probably represent less .0001% of all grants available and less than the total amount of money available. They so far and in between that even the Small Business Administration maintains the policy that they “don’t exist”.

How does the small or mid-sized business owner get around the lack of grant money? Through creativity. If you offer a service that could be utilized by the poor or the average working joe – but is priced out of their reach, you could offer it through a collaboration with a nonprofit. For example, a mortgage company could provide financial services for clients of a nonprofit that graduated from a first time homebuyer’s program. The grant funding the program would go directly to the nonprofit which would in turn pay the mortgage company as a vendor to provide customized services to the nonprofit’s clients. Perhaps the mortgage company would guarantee to get home loans for clients that would otherwise be overlooked by most lenders on the strength of their new financial knowledge and the ongoing support of the nonprofit to prevent future foreclosure. (Foreclosure among working poor and bottom-half middle class is skyrocketing)

What’s important to keep in focus is that the idea of the business grant is nothing more than an urban legend constructed from infommericals created by old men in suits covered in question marks.