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Startup Playbook: success through failure

Things You Need to Know Before Applying for a Startup Grant

Only one out of three small businesses doesn’t face any financial challenges at the very beginning of its journey. More than half of all aspiring entrepreneurs invest their personal savings or tap friends and families to fund their initiatives. A lack of funds can seriously limit the potential of any enterprise.

That’s why founders turn to start-up business grants that provide an instant cash injection and, unlike seed funding, don’t need to be repaid. However, the time it requires to locate an opportunity and apply for a grant may be a real drawback here.

You will have to navigate your way through the sea of grants reserved for niche markets, nonprofits, and governmental organizations. And this journey may take a while.

Sometimes, you will have to read a huge pile of documents on a startup financing opportunity to discover that only producers of vegetarian meat in rural areas who run their factories on solar energy can apply. Dead ends and mismatches during the search phase are among the top reasons many startups give up on grants completely.

This article will provide you with useful tips on the effective search and give you some insight into how to prepare your grant application, to increase the chance of getting that cash boost your startup needs so badly.

Looking to apply for EU Funding? Check out the article on writing a successful application here

What criteria should my startup meet to apply for a grant?

Grant applications for startup fundraising may vary from a slew of general questions to a full-scale research-like paper containing a detailed business plan budgeting. Grant issuers typically evaluate startups with some general criteria, such as:

  1. Ownership right. This is a crucial element for many grants, which may either give a startup an upper hand in receiving funding or, if not matched, completely ruin a perfect application. There are grants reserved for companies owned by individuals – not other companies or trusts – or run by women, minorities, veterans, etc.
  2. Geography. A high percentage of small business grants target a certain location. Some of them require that your startup is a resident of a certain state or has an office or a production line operating in a specific location.
  3. Market potential. Before providing investment for startups, some organizations request entrepreneurs to investigate the innovative potential of their idea. Sometimes, business owners will have to provide evidence that their business has a solid financial model and their product or service will find its audience on the market.
  4. Age and size. Grantmakers often require companies to be of a specific age or size to comply with the grant requirements. For example, only companies that exist less than one year or have less than 15 employees can apply.
  5. Social benefit. There are plenty of grants out there designed to invest in startup companies that promote the public good. If your business model includes a zero-waste policy or recycling, you should look towards grants supporting companies with positive environmental impact.

Why do startup grants stand out?

Among other sources of funding for startups, grants are somewhat unique since they supply businesses with funds or valuable items, without obliging the owners to return them after a certain period of time.

Compared to crowdfunding for startups, funds received from VC funds and angel investors, grants don’t require you to share your company’s equity with anybody.

The image below illustrates what sources people refer to fund startups in the early stage of their existence.

There are some clear benefits that put grants as a better funding option against other sources.

  1. Direct cash injection. Grants were created to promote small businesses at the early stages of their existence. Once you have the money, you can use it, without the necessity of thinking about paying it off with interest or giving a share of your company to a third party.
  2. Increased exposure. Major grantmakers who invest in startups are often presented with global brands and governmental agencies who tend to share the outcome of their funding programs. They say exposure doesn’t pay the bills, but increased publicity gained with the cash prize can give a small business an even greater boost than the money itself. 
  3. Additional support. In addition to giving your business some hard cash, many startup grant programs feature training courses, mentoring sessions, and other forms of support to increase the overall viability of your enterprise.
  4. Enhanced security. Receiving a grant reduces the need for funding your company’s growth and improves the financial stability and security of your business.

Do startup grants have drawbacks?

Small business grants can be extremely useful. However, they cannot serve as plasters for your startup’s cuts. As a matter of fact, grants do possess a slew of disadvantages against other types of funding, which all entrepreneurs must consider before they apply.

  1. Strict requirements. The toughest part of receiving any grant is that you must comply with a long list of requirements when preparing your application. It requires a certain degree of experience to find out whether this or that grant is suitable for your company.
  2. Tight competition. Supposing that your company would be among the few who got noticed by grantmakers and win the cash prize at once would be an utter act of wishful thinking. The FedEx grant program received more than 4,000 applications in 2020 and only 12 companies could make it to actually get their hands on the prize. The chances for an application to win a grant were somewhere around 0.3%, which can be compared with winning a lottery – extremely cool, but not the thing you would typically rely on when preparing a business plan.
  3. Stretched timeframes. Another thing all grant applicants must consider – the process is slow. Grantmakers often stretch the application period for months, in order to attract as many participants as possible. Once it is done, you may add another couple of months waiting for the final decision. Finally, it may take a while, before you actually receive the cash.

Is there a 100% winning strategy?

The only trait that 100% of grant winners share – they dared to apply. Don’t be suppressed if you fail with your first application. Each new grant is another chance to climb new heights and give your startup that cash boost and increased exposure it needs to take off.

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