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The Truth About Small Business Grants

Thursday, March 27th, 2008

Government Grants and Small Business SuccessThinking about getting a government grant as a way to help finance your small business? You aren’t alone. If you watch any T.V. (especially late night T.V.) or do much reading on the Internet sooner or later you will stumble on a tantalizing possibility for the small business owner: government grants. The holy grail of business financing (of any financing, really) a chunk of money that you never have to pay back. What could be better?

DO NOT PAY, DO NOT PASS GO

Let me start by saying: DO NOT PAY ANYONE FOR GOVERNMENT GRANT INFORMATION – NEVER, EVER, NEVER, EVER, NEVER! (If you need more reinforcement, copy the NEVER, EVER part and paste it again and again in your favorite text program until it fills the screen. If you still think it might be a good idea to pay for some “inside secrets” then ring your call button and Tommy will come hit you on the head with a tack hammer — 10 bonus points for the movie title.)

ALL government grant information is free to the public. You cannot get anymore information from the private sector. The “secret” is to fully and completely comply with all of the requirements for the grant application. It is harder than it sounds. Anyone selling you a package or subscription or whatever is doing nothing more than repackaging the free information I will show you how to get in this article. There, I just saved you enough money to pay for your subscription to JDsBlog.

Not Easy Money

There isn’t a saying that I know about, so allow me to coin one myself that you may feel free to repeat to infinity. “If there is an infomercial about it, it is probably a scam. ”

The best lies are those with a hint of truth. This allows the true part to be verified. Then through slight of hand and with the help of those precious people born every minute (That one is already a saying. Look under Barnum Bailey.) the true part lends its veracity to the rest of the scam and “Bam!” you’ve got yourself a great scam. (This is also how politicians and political radio and T.V. hosts also operate.)

So, let’s break it down. Yes, Virginia, there is a government. You should be painfully aware of this fact as we head toward April, and doubly so if you are a self-employed. (12.7%? !*#!$^@!) It is also true that this same government does in fact disburse grant money. Further, it is true that some of that grant money goes to businesses. It is again true that some of that money goes to small businesses. Ok. We are done here in the Total-Truth Cafe. Let’s head on over to the Half-Truth Inn.

At Half-Truth Inn, their slogan is “The Government Gives Away Billions of Dollars Each Year”. Of course, here in the Half-Truth Inn only part of any statement is true. In this case, it is true that the government gives away Billions of dollars each year. Too, bad that most of that goes to college students. Ever hear of Pell Grants? Those are government grants; over $15 Billion worth. What about business grants? Again, Billions is right. Exxon, Archer Daniels Midland, ConEd, GM, Tennessee Nuclear Power Authority, ever hear of any of them? They got Billions. How about small businesses? Sure. A good friend of mine owns a small business. He applies for millions of dollars worth of grants each year. He has even received some government grant money for his small business. His secret? Well, he and his partners hold about six or so PhDs among them and they are in Biology and Biochemistry and they still have some ties to the university, and they do research into the right things; sound like your business? Ever see an announcement about $300 million dollars to fight diabetes? Some of that will be research grants.

The Real Story

Across the street is the Hard-Facts Tavern. Let’s get a table. For an appetizer we’ll order off the Small Business Association web site. The Small Business Association (SBA) is a government agency dedicated to helping small businesses and small business owners succeed. Just what the budding entrepreneur needs, a little help from a big friend. Open their homepage http://www.sba.gov/ (the link will open in a new window).

Click where it says: small business grants. Not on there? Maybe they call it something else. Try “Billions in Free Money”. No? How about just “Free Money”? Hmmm…let me check with the manager.

Ah-hah! Here we go (it was on the back of the menu) :

Q-2. How do I get a small business grant?
The U.S. Small Business Administration does not offer grants to start or expand small businesses, although it does offer a wide variety of loan programs. While SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments. For more information, visit our Grants section

Hmmmm. They must be kidding because there are tons of links off of the Grants Page. (Feel free to wander off and explore later, but I’m going to bring it home here in the next paragraph, so stay put for now.)

Time for the main course. Let’s find the government grant we want to order.

Start with the “Business” listings from grants.gov. Not too many there. Maybe if we were a little more specific…

“The Atomic Molecular and Optical Physics program encompasses four sub-areas of this broad discipline: Precision Measurements, Atomic and Molecular Dynamics, Atomic and Molecular Structure, and Optical Physics. Research supported in the first three sub-areas includes activities in quantum control, cooling and trapping of atoms and ions, low-temperature collision dynamics, the collective behavior of atoms in weakly interacting gases (Bose-Einstein Condensates and dilute Fermi degenerate systems), precision measurements of fundamental constants, and the effects of electron correlation on structure and dynamics. In Optical Physics, support is provided in areas such as nonlinear response of isolated atoms to intense, ultra-short electromagnetic fields, the atom-cavity interaction at high fields, and quantum properties of the electromagnetic field.”

Whoa! Too specific, and also, WHAT?!?

Wait, here it is: Small Business Innovation Research (SBIR) grants.

Now that ought to do it.

“The Small Business Innovation Research (SBIR) program is a highly competitive three-phase award system which provides qualified small business concerns with opportunities to propose innovative ideas that meet the specific research and research and development needs of the Federal Government.”(That is their emphasis, not mine)

Curious about the “specific needs”?

  • Cryogenics for Kilopixel Sensor Arrays
  • Contactless Conductivity Detector for Temperature Gradient Focusing
  • High Spectral Purity, Millimeter-Wavelength (W-band) Oscillator
  • Time Synchronization of Wireless Sensor Networks
  • Multiple Contact Nano-Probes for GHz to THz Electrical and Optical Characterization
  • Barrier Fabrics for Fire Safe Furniture and Mattresses

Eesh! Maybe we don’t want to eat here.

Go For It

Ok, now it seems like I’m bagging on government grants. Sorry, I’m not. It’s great if you can get in on it, but it isn’t the easy river of money some people make it sound like. I should know. I’m a freelance writer and some of my work is writing grant proposals. Generally these gigs start off with gleeful clients because the have FINALLY found a government grant they can apply for. They tend to get grumpier as we go along and I keep coming back and asking for the things the application requires. “But, we don’t have a three-year audited business history…”

The truth is if you are willing to do your research on a regular basis (not just this one time, but monthly or quarterly) you might come across a grant that would fit your business well enough to apply for. But, with dozens of government agencies running dozens of grant programs isn’t easy, and that is just to FIND the grant. Then you have to apply. Here is the 62 page Guide for the Preparation and Submission of NSF (National Science Foundation) Applications via Grants.gov. And, that is just for NSF grants. There are dozens of these things and these are the GENERAL guides, not the actual requirements for specific grants.

As my friend who gets the grant money says, “Anybody can apply for these things so they make it a pain in the a@@ so that they won’t get too many applications.” This is a true statement. The grant process is kept streamlined by quick rejection of most applications via computer. Not registered as a small business in the proper database? Application Rejected by computer before anyone looks at it. Improper attachments? Rejected. And so on. This is why you can make money in grant writing. No one pays you to write the grant, they pay so that you write the grant while complying with all of the tiny details that make it so difficult.

So, you want to try out the government grant route for yourself? Good for you. Adversity should be no barrier to achievement. (I made that one up too! I think I’ll make a poster…) Just make sure you are doing your real work first. This is your spare time project, Skippy, because the odds here are a lot lower than getting out there to do some networking and finding some new clients. Here is where to start off:

Between these 2 sites you’ll find most available government grants:

THE Site: www.zyn.com (Private company tracks and posts government grants)

THE Government Site: www.grants.gov (Official U.S. government grant site; not all agencies use this site)

Other More Specific Sites:

Catalog of Federal Domestic Assistance — Business Programs

afterschool.gov — for running an after school program for children

Stay Away from Google! This is one of those areas where the scammers work triple-overtime to make sure their legitimate-looking-but-completely-garbage websites show up on the top of the results. Take a look and prepare to be bombarded with offers to sell you “Secrets” or “Inside Tips” or whatever. DO NOT PAY FOR ANYTHING!!!! If you do (sucker) expect it to not be anything special.

The truth can be a little bit of a bummer, but despite the fact that the government loves small business (well, supposedly anyway, wait until my next post about the taxes…grumble!) you can’t expect a free handout from the Feds just because you have a small business. Not, at least, until you dish out some bigger campaign contributions (too cynical?)

27.03.2008 entrepreneur tools, finances Comments

My Baby Would Like a Loan, Please

Monday, March 24th, 2008

Business Finances - How to get small business loansOne of the realities of small business that trips up even experienced entrepreneurs is how the bank reacts when asked to provide a small business loan.

I’ve lost count of the number of times I’ve sat across from an exasperated client as he spills out his story. The business owner went to the local bank, most likely starting at the one that handles his business checking account. I know the next sentence before they even say it. Upon asking for a small business loan, the bank asked for collateral, and barring that, a personal guarantee for the loan.

Well, of course, our hero thinks this is ridiculous. His business is doing great. It is profitable, and healthy, and growing. So, he goes to another bank, only to get the same response. By now, he’s really agitated. Chances are the business doesn’t have anything that can be used as collateral. If there were large pieces equipment, those were likely collateralized by the financing used to purchase them (or even leased). But, he definitely doesn’t want to personally guarantee the loan. After all, isn’t that the whole reason he setup the business structure in the first place, so he didn’t have to put his personal assets at risk?

Ding, ding, ding. (You can’t see it, but I’m also pointing to my nose while I say “ding”.)

Yes it is exactly why he setup the business structure, and it is exactly why the bank won’t loan his business anything no matter how successful it is.

Business as a Legal Entity

I’m not a lawyer, and I don’t play one on T.V. but I know that sometime during Day One of Business Law 101, a budding law student learns that a corporation is legally considered a “person” in many contexts. Legally speaking, a person is different than people. People is a term generally limited to human beings, excepting certain human looking androids that are friendly and searching for their own humanity, but excluding certain human looking androids searching for Sarah Connor. A person, on the other hand, can be not only people, but also other Legal entities including a business or corporation. Once you grasp this concept, it isn’t very hard to see the bank’s side.

If you started your business two years ago, then your business is a two year-old baby. Unless you have gotten credit in the business’ name, it has never had credit before. As a person, your business has a ZERO credit score. Try walking into any bank in the country with no credit history and asking for anything but the tiniest unsecured loan and prepare to be laughed at. So, what does someone with no credit and no collateral do in order to get a loan? They get a co-signer. Guess who the co-signer is for the business with no credit history? Welcome to Square One.

Your Business Grows Up

I counsel all of my clients to go down and get a credit card in their child’s name on the day their child turns 17 (sooner if they can find an institution that will allow it). Many bank’s will issue a credit card in a 17 year-old’s name IF the parent co-signs on the card (and also signs the card agreement on behalf of the minor). The parent goes on the account as an “additional cardholder.” The key is to make sure the credit card account is in the child’s name and that the parent is only a guarantor on the account (otherwise it is likely that recent changes will cause the child’s part to not count, even if listed first on the account.) The parent keeps both cards (the child does not get a card, or the number, or the password to the online access.)

Once the card has been issued the parent makes a modest purchase (something in the $100 range) and then pays the minimum when the first bill arrives. The next month, he pays it off and locks up the cards. Four to six months later he pulls the card back out makes another modest purchase allows a balance to remain on the card for one month and pays it off. Repeat the process a few times, and before you know it, the child will be graduating from high school. The difference between that child and another with less savvy parents? That child has 12 or more months worth of good credit history while the other has none. This small difference will make it much easier to open bank accounts, get other credit cards, get a car loan, and so on. (Right about this point, the parent should have his name removed from the account to prevent any future trouble.)

As a business owner, now is time to help your business grow up too. Most entrepreneurs finance their company’s first years out of their own pocket. There are a multitude of reasons to do so ranging from being the easiest to racking up airline miles. Of course, this improves the business owner’s credit worthiness, but does nothing for the business.

When you start a new (non-sole proprietor) business, you will need to register with the state in some way. These registrations are usually public record. Some states will outright sell the list of newly registered businesses. Even if they don’t sell the list, there are plenty of companies out there with computer programs that simply check the databases against the list of previously existing entries and build their own list of newly established businesses. What this means for you is that you are going to get junk mail. Some of that junk mail will be credit card offers and banks offering to give you a free business checking account. Don’t throw it all away. (Don’t throw any of it away before running it through a shredder). Get at least one credit card and one bank account right away. Make sure they have no monthly fees, no annual fees, no inactivity fees. In other words, make sure they are free. Then, put some money in the bank account (it doesn’t have to be a lot) and charge some office supplies on the credit card. Now, a trick is to make sure you pay a little bit of interest every so often on your card. (Hey! I said a little bit.) Believe it or not, your credit account will look different if you have never paid any interest than if you have. You want credit for paying of an installment account (one that charged interest) so buy a toner cartridge and only pay half of it the first month. You’ll pay just a couple of bucks in interest and then you can pay it off. Trust me, that two bucks will pay you back in spades.

Viola! Your business has credit.

Take That Line Of Credit

Businesses don’t have credit scores the same way people do. What they do have are credit references. That is, other companies that will vouch for your business by saying that they have extended you credit and you have paid them back in a timely manner. If you have a supplier you buy from regularly, ask your sales guy how you can get credit with them. Chances are after paying cash for a couple of months they will extend you enough credit to buy your usual order for a couple of months. Take them up on it by using the credit line and then paying it back. In this case, there is no need to try and get charged interest since this account won’t be scored by a computer somewhere. Instead, they will take a phone call or send a letter at your request to say that you are a good business. Setup more than one supplier this way, just in case.

Get A Loan You Don’t Need

If the first loan you ever apply for is for $75,000, things are going to be tough. This is the reason that many franchise programs have their own financing for their franchisees. If you can stomach the thought of paying some interest to build your business’ credit, you can always get a smaller loan first. Getting a $5,000 loan for some equipment or to pay off a supplier can help build your creditworthiness. However, since you are paying interest on that loan pay it back as fast as possible and don’t go this route lightly. A $5,000 pay back looks nice, but still no one is going to throw 300 grand at you after paying back a small loan.

Do You Need A Car?

If you have a need, and your tax guy gives his blessing, it might be worthwhile to have the business buy or lease a car. Unlike business loans with no collateral, your bank is probably all for loaning you money to buy a car. After all, the car is collateral so even if you disappeared behind your corporate protection, the bank still can legally take the car. Another loan, another history of good credit.

Bite The Bullet

The above tips are nice and they will make getting credit easier for your business, but nothing you do along these lines compares to asking for a $50,000 unsecured loan. Just because you have a couple of business credit cards and a few vendors who give you high marks doesn’t mean your bank is going to fork over 50K without going through your books with a fine tooth comb and discovering that your business makes so much money it doesn’t really need a loan. (Banks love to lend money to those who don’t need it.) So, step up to the plate and put your name on this loan. Make sure you pay it off as efficiently as possible, and next time you need a loan like this, maybe your bank won’t be so insistent on your name being on there too.

24.03.2008 finances Comments