Small Business Loans for Free: The Misconceptions Surrounding Federal Grants

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The term “bootstrapping capital” refers to the practice of small business owners scraping together the funds they need to get started, and it’s a term that many visitors to the SBA’s forum on Loans and Grants are introduced to after posting about their need for financing. A typical message on the boards will start out with a business owner speaking about their unique model, touting the benefits that it will bring to their community, and then asking if there are any grants that exist that can help them to develop their project. The answer to their inquiry is usually “no, there are no grants for for profit businesses.” While Federal grants do exist, they are primarily set aside for non-profits and medical research, leaving business owners, in particular female, minority and veteran entrepreneurs wondering what is available for them. While it is a misconception for business owners to think that there is free money for their enterprise available from the Government, the SBA does have programs designed to nurture businesses whose owners fit into these demographics. The Patriot express loan program, for example, can allow veteran owned businesses to apply for a business loan. However, since the SBA is not a loan provider, rather a backer of bank provided small business loans, if a business falls outside the acceptable criteria for their programs then they are left to figure things out for themselves until they reach a point where they are able to meet bank criteria.

One way for business owners who realize there are not Federal grants for them to work things out is through local business incubators, which are resource centers designed to put entrepreneurs in touch with resources and mentoring. Private companies or non-profits will also offer grants to small businesses for PR purposes, and investigating private grants may be worthwhile for business owners who are looking for a boost. However, in order for a business to be given the financial options of a business, it really needs to be creating revenues, meaning that they will have to get to that point through the art of bootstrapping.

New businesses are also able to get funding from alternative capital after a point. Since there are restrictions surrounding true business loan products regarding minimum time in business, those who really can’t wait for capital can use an alternative funding company as a source of working capital, based off of their revenues. What does this mean for those who cannot get grants? It means they need to identify the parts of their business that are capable for creating revenues for them and then develop those first. In the eyes of a capital provider, a business without income has very little chance of being able to repay their advance or loan. Small business owners should therefore prioritize getting sales on the board so that they have something to point to, rather than putting together business presentation that does not contribute to their ability to grow directly. Growing business cash flow as a first priority also give business owners more maneuverability in terms of pursuing the most productive pathways to growth, which is incredibly important.

Photo Credit to The U.S. Army on Flickr

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