The truth about government grants for your new business

Hint: There is no free money. Many people have misconceptions about government grants available for start-up companies. Read more to get your facts straight.

Many individuals who approach the Michigan State University Product Center for business counseling are certain that there are government grants available for start-up companies. They may have heard a late night television infomercial, heard it from someone they trust or did a cursory internet search but not read the fine print. These individulas seem skeptical when I explain that they have been mis-informed. Other business-counseling type organizations experience the same phenomenon.

The Small Business Administration (SBA) provides a simple explanation for this: “Well, government grants are funded by your tax dollars. Any grants must be appropriated through Congress and The White House and are tied closely to specific agency agendas, such as the Department of Energy or the Department of Agriculture. To further complicate matters, the government has very stringent rules about who it provides grants to and what those funds can be used for.”

In addition, these grants usually require matching funds and are on a reimbursesment basis. You must have successfully executed the project outlined in a detailed grant proposal which meets all of their criteria.

This is reinforced by the website “The U.S. Government does not generally award federal grants to private for-profit small businesses. Typically only non-profit agencies benefit from these grants. There are some exceptions…” And so, there arises the common misperception that you would be one of those exceptions because you belong to an underserved group. The same website states, “Simply being a woman doesn't ensure you will qualify for a federal grant. There are many more qualifications needed, including having a business or non-profit organization geared towards helping women and an established track record of service.” 

There are organizations, like the SBA, and banks that do make new business loans, however one needs to be well prepared. Usually a well-thought out business plan with justified projections of growth, as well as one to three years of detailed income statements is expected. If you don’t have a record of sales, they may consider giving you a personal loan if you have a secure income and collateral and a good payment history. Your credit report will be reviewed, and a small percentage of collateral is expected to be pledged. It makes a huge difference if you know your business financials inside and out.

So you may qualify for a loan, but remember, the truth about free federal grants is there are no free federal grants.

The MSU Product Center, in partnership with Michigan State University Extension, provides business counseling for product development, packaging and marketing strategies that will help Michigan entrepreneurs commercialize high-value, consumer–responsive food, value-added agriculture, and natural resource products. For more information, visit the MSU Product Center website or call 517-432-8750.

Did you find this article useful?