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Federal Funding Programs for Small Businesses Startups

9 min read

The Struggle is Real

Small business owners often struggle to understand how to raise money to help them launch their startups. Too many rush into taking on investors who consume part of their company’s profits and have a say in important decisions, even when their views don’t align with the founder’s vision.

For these reasons, we recommend that when you’re starting out, you look into what your federal government can do for you. You might be surprised that there is “free money” available through small business grants, and low-cost loans from the Small Business Administration — both perfect opportunities to get your hands on federal funding for startups.

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Small Business Grants

First, a word about small business grants. Though there are countless programs available at Grants.gov, remember: there’s no such thing as a free ride. You don’t just fill out a form and wait to cash in. For any government grant program, you can expect a good amount of paperwork to fill out, and a waiting period to see if you qualify. These grants are built around providing access to company missions that will prove assets to their community, so also remember that the proof will be in the pudding.

For the purpose of this article, we will be focusing mostly on government grants located in the United States for residents and US-based businesses. But even if you’re located outside the US, many of these tips are applicable, and we encourage you to look into the specifics of obtaining a government grant, no matter where you live.

To give you the best chances of getting a small business grant, the government advises that you thoroughly review all of the eligibility guidelines before applying. There will be technical, legal, and administrative prerequisites, and assuming you get the funding, there will be ongoing reporting and bookkeeping, as well as audits to ensure you are living up to the terms of the grant.

You should also know that many federal grants for small businesses are distributed to state and local governments, so you should always check there, too, for specific programs that could help out your business. Speaking of specific programs, grants are not typically general in nature — meaning that they are meant to serve a certain purpose. Here are a few examples:

For minority-owned small businesses, the U.S. Department of Commerce Minority Business Development Agency (MBDA) provides both grants and loans to help them grow. The organization also runs MBDA Business Centers to help secure capital, compete for a contract or identify a strategic partner. The MBDA is an excellent place for any minority-owned business to start and get special assistance allocated by the government to help them be more competitive.

Small Business Loans

If you’re looking for a federal loan, there is no better place to start than at the U.S. Small Business Administration (SBA). You may have heard of the SBA before, but did you know that in addition to helping you secure loans, they will guide you through planning, launching, managing and growing your business?

At your fingertips, you will have access to free business consulting from experts and funded partner organizations like America’s Small Business Development Center (SBDC) network, which runs community-based offices across the country. Though the SBA is where you go for federal funding for your startup, the SBDC will save you money by providing:

  • Free business consulting
  • Advice for accessing capital
  • Business planning
  • Technology development
  • Regulatory compliance
  • Marketing
  • International trade assistance

When you are ready to apply for funding from the SBA, they will match you to lenders near you that specialize in SBA-guaranteed loans. The agency itself doesn’t lend money directly to small businesses but instead sets guidelines to reduce the risk for both you and the lender. These loans provide many benefits, like competitive terms, rates, and fees. Some loans come with ongoing support to help you start and run your business. And they offer lower down payments and flexibility you won’t find on your own.

The loans you can get from the SBA include:

7(1) loans — This is the most common SBA loan, and is used for short- and long-term working capital, purchasing office furniture and supplies, and even refinancing business debt you may already have. The maximum amount that can be borrowed is a whopping $5 million!

504 loans — This loan also comes with a $5 million cap and provides a fixed rate to finance major fixed assets that are used for business growth or creating jobs. Assets include things like existing buildings or land, new facilities, machinery, and equipment.

Microloans — These loans provide up to $50,000 to help startups launch or expand. The average loan is about $13,000 and is typically used to help small businesses expand with working capital, inventory, supplies, furniture, fixtures, equipment, or anything else that can enhance the business. Microloans cannot, however, be used to buy real estate or refinance existing debt.

The final loan worth mentioning that is offered by the SBA is the 8(a) Business Development program. This program is targeted at helping small disadvantaged businesses — those that are owned and controlled by socially and economically disadvantaged individuals. The goal of the program is to help “socially and economically disadvantaged entrepreneurs” help to “gain a foothold in government contracting.”

Unlike other loan programs, this program is divided into a four-year developmental stage and a five-year transition stage. The benefit, however, is that businesses that qualify may be able to receive contracts up to $4 million for goods and services, and $6.5 million for manufacturing. Not only that but each individual participant, for the life of the program, is entitled to up to $100 million in contracts!

And as if that wasn’t enough, participants will get specialized business training, counseling, marketing assistance, and even executive development — all provided by the SBA and its partners. Plus, you may even be eligible to access surplus government property and supplies, SBA loans, and bonding assistance.

As with other programs, you will be expected to live up to certain goals and criteria on an ongoing basis, which the SBA will monitor through annual reviews, business planning, and ongoing evaluations.

Trust in Yourself

So what are you waiting for? Check out all of these sources of federal funding for startups, and as mentioned, don’t forget to research programs available in your state and locale. The federal government does its best to offer free money to stimulate small businesses through grant programs, and because there are so many programs, much of the money goes unclaimed each year.

Small business grants can be competitive, so don’t lose hope if you don’t qualify or aren’t accepted into a program right away. Turn to the SBA and SBDC in your area to qualify for low-cost, low-interest loans that you can pay back quickly once your business gets off the ground. The government trusts you can do it  now it’s up to you to put in the work and trust in yourself.

Do you want to learn more about startups?

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About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.

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