What is a government grant and how do they work?

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Page written by Chris Godfrey. Last reviewed on September 4, 2024. Next review due October 1, 2025.

Across the US, local, state and federal government bodies provide grants for small businesses and non-profits. Collectively, these authorities are the nation’s biggest source of grant money and services. Getting a government grant can take your business, initiative or special project to the next level and beyond. Read on to find out all you need to know about this important source of funding.

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How do government grants work?

Government business grants can be used to support business opportunities, or initiatives in the arts, education, research and more. However, entrepreneurs seeking a government grant should expect a lengthy application process, typically needing to meet strict guidelines, timelines and other qualifying criteria. Competition for this type of funding is often fierce and even if you qualify, the award sum may be small, requiring you to seek additional finance.

Be aware that many government grants are tied to specific goals and selection committees have full control of the award process and the sums distributed. To succeed, you will usually need a strong business plan that includes a feasibility study and an indication of how you intend to keep the venture going in the post-grant period.

Lastly, if you receive an award, the money may come to you all at once, but more usually, it will come in stages – either based on a set calendar or on your venture achieving fixed objectives. Unlike business loans, grants do not need to be repaid, making them a crucial financial resource for ventures that cannot sustain a large financial burden.

Advantages and disadvantages of government grants

Advantages

You do not have to repay the money if you use the funds properly.
Grants are not debt. This may make it easier to get business loans as well as a grant.
You do not have to provide collateral to get a government grant.
Compared to obtaining a loan, getting a government grants is less reliant on your credit score.
Government grants are available for start-ups and businesses with very little trade.
Government grants are available for non-profit and for-profit organizations

Disadvantages

It can take a long time to obtain a government grant.
Grant awards are often competitive so you may not get the funds you want even if your presentation is excellent.
You may receive an award that is smaller than amount of cash you need.
Government grants usually have short application windows. If you miss the slot, you will have to wait for the funding cycle to come around again – which could be a year or more.
Unlike business loans, few government grants provide ‘top up’ funds. Whatever you receive at first is usually all you’ll ever get.
Grant applicants usually have to meet strict qualifying criteria, or you must be based in a certain location or operate in a narrow business area.
Awards are usually given for a specific purpose. You may not be able to use the cash as general working capital.
Most government grants will require you to provide a detailed report on your use of the funds and the impact they have had on your business or project. If the Grantor deems that you have misused the award, you may have to pay back the cash.

Is applying for a government funded grant right for your nonprofit?

For many non-profits, government grants are often the only source of funding they can obtain. But how do you know if a government grant is right for your non-profit? Here’s a checklist to help you to decide:

If you accept the grant will it negatively impact the work your non-profit does? (For example, will you no longer be able to help certain groups of people?). If your answer is no, then a government grant could work for you.
Will you still be able to receive funds from other sources if you accept a government grant? If yes, then a grant may be a good option to choose.
Does taking a government grant affect the way you operate – for example, you must provide complex reports every month or quarter instead of once a year? If not, then once again, a government grant could work for your organization.
Do you meet the grant criteria? Check the rules of application for the grant you are applying for. If you pass the test, then the grant may be suitable for your non-profit.

Ultimately, deciding if a government grant is right for your organization will come down to a mix of the points raised above and more. If your overall answers come out in favor of taking a government grant, then you should apply.

How to apply for a government grant

Small business owners and entrepreneurs can improve their chances of winning a government business grant by preparing in advance. Key tasks to take care of include:

Identify your need for the grant. Why do you need the money? What will you use it for? You must present a strong case for funding to secure a government grant. No matter if you want to start a business, grow an existing company, conduct research or undertake a creative project, having a clear vision of what you wish to achieve with the grant money is crucial.
Search for suitable grants. Once your goals are set, you can search for grants that fit your mission objectives. Identify the qualification rules, time limits and any restrictions that may apply.
Prepare your application. Few grant programs are the same. As well as the application forms, grantors may also ask you to provide a presentation deck, submit endorsements, create a financial plan, or write a detailed grant proposal. Make sure your ambitions are clear. Point out the benefits that receiving an award will deliver for your business, your community and everyone your venture will engage with. Be positive but maintain feasibility. This is your opportunity to present your case for funding in the best possible light.
Submit your application. Check the submission guidelines – online, hard copy, or both, and submit your grant application well in advance of the posted deadline in case there are last minute issues with receipt.
Wait for a decision. Be patient. Grantors are often inundated with applications and the review process of all submissions can take time. However, you should at least follow up with the grantor to ensure your application was received and is being processed. You could also use this time to search for other funding options in case your application is not successful.

Where can I find government grant funding opportunities?

There are literally thousands of government grants available in the US. They are offered by federal, state and local government departments and they can cover everything from launching a new business or gaining funds for environmental projects, to refurbishing your business premises or creating advanced technologies. Here are a few of the best places to start your funding search:

Federal government grants

Let’s face it, nobody has deeper pockets than Uncle Sam. Although a lot of federal funding is given to state and local authorities to disperse, there are still many small business grants available direct from the guys in DC – see below:

Grants.gov

If you can’t find the grant you want here, you may not find it anywhere. Grants.gov is an online goldmine for grants and federal business support initiatives. Provided by the US Office of Management and Budget, the Grants.gov website gives grant seekers access to more than 1,000 grant programs and vets grant applications for federal grant-making agencies.

US Grants

US Grants is another one-stop portal to find and apply for government grants, stimulus packages and funding opportunities from local, state and federal government agencies. Available small business grants include funding initiatives for organizations that operate in the fields of tech, health, research, sciences, agriculture, the environment, etc.

SAM.gov’s assistance listings

Assistance Listings are detailed public descriptions of federal programs that provide grants, loans, scholarships, insurance, and other types of assistance awards. Browse assistance listings across all federal government agencies to learn about potential funding sources.

SBIR and STTR programs

The SBIR and STTR programs are competitive grant programs that expand funding opportunities for federal research and development. Both initiatives encourage research partnerships, but STTR requires each applicant to collaborate with a non-profit research institution during the first two phases of the program. To qualify, you must operate a for-profit business with less than 500 employees and fulfill all eligibility requirements.

State government grants

Every state in the US offers grants to small businesses and non-profits, although you may have to do your homework to find the grant that’s right for you. Usually, you can obtain state government grants from departments such as:

You can also find a wide array of government, private and corporate grants in Swoop’s grants database.

Local government grants

Awarded by local entities such as county and city management, these grants take a local view and are usually limited to projects and activities within the city or county boundaries. Most local grants focus on job creation, education, community improvement or supporting specific groups of people or entities.

Government grants for minorities, immigrants, Native Americans and more.

Some government grants are provided specifically to support marginalized, disadvantaged or underserved communities. See our lists of specialist grants below:

What are the alternatives to government grants?

Business loans may provide an alternative source of funding for entrepreneurs wishing to grow their business or start a new venture. Online lenders will typically be the best option for this type of financing, although you may pay higher interest rates and fees than you would with traditional banks. Credit checks are standard with most commercial financing, but depending on the type of loan you choose, you may not need to provide collateral:

Term loans

You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Collateral may be required.

Business line of credit

Withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sums you withdraw, not the whole credit line. Collateral may be required.

Invoice financing

Borrow against the value of your unpaid invoices. The lender usually provides up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as security for the loan, no added collateral required.

Equipment financing

Use your new equipment as you pay for it, while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright. No added collateral required.

Merchant cash advance

For businesses that accept customer payments by credit and debit card. Borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Your sales act as security for the loan, no added collateral is required.

Revenue financing

Similar to a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), businesses may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. This type of loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical. No added collateral is required.

SBA Microloans

Available up to $50,000, SBA microloans come with relaxed qualifying rules and can usually be secured with FICO scores as low as 500, or even with no credit score at all.

Get started with Swoop

Working with business finance experts can make all the difference when applying for grant funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare top quality small business grants and business loans from a choice of providers. Give your business the chance it deserves. Register with Swoop today.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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