Small business grants: what’s realistic and how to avoid scams

Grant scams are common enough that they come first here. The FTC describes how government grant scams (opens in a new tab) work. Common signs:

• You are asked to pay a fee to get a “free” grant, or to “release” or “process” money you were told you won.
• An unsolicited call, text, email or social media message says your business was selected for a grant you never applied for.
• Pressure to act today, or requests for your bank login, gift cards, a wire transfer or cryptocurrency.
• An official-sounding agency name you cannot find on a real government site, or a .com website claiming to be a federal agency. Federal government sites use .gov.
• Paid lists or databases of “secret” grants, or promises that you will win. Searching Grants.gov is free.

If you spot one, you can report it to the FTC at ReportFraud.ftc.gov (opens in a new tab).

• Federal grants. Federal grant opportunities are listed on Grants.gov (opens in a new tab). Most go to nonprofits, state and local governments, schools and research institutions, not to for-profit businesses for general startup costs.
• SBA programs. The SBA’s grants page (opens in a new tab) explains that it does not provide grants to start or expand a business, and lists the specific programs it does run.
• SBIR and STTR. The Small Business Innovation Research and Small Business Technology Transfer programs fund small businesses doing research and development for federal agencies. They are competitive, proposal-based and technical. See SBIR.gov (opens in a new tab).
• State and local programs. State economic development agencies, cities and counties sometimes offer grants, often tied to hiring, a location, a disaster recovery effort or a particular industry.
• Private and corporate programs. Companies and foundations run competitions and grant programs. Read the rules carefully: some mainly collect marketing data.

Grant applications take time, deadlines are fixed, and many programs get far more applicants than they can fund. Awards are often modest, may be paid as a reimbursement after you spend the money, and usually come with reporting on how the funds were used.

Because of that, it helps not to plan cash flow around a grant you have not been awarded. Many owners pursue grants alongside other funding rather than instead of it. The SBA loans explainer and the loan-readiness guide cover the financing side.

1. Find the program yourself on the funding agency’s own .gov site or on Grants.gov, rather than through a link in a message.
2. Confirm the program name, the funding agency, the deadline and an official contact.
3. Check who is eligible and what the money may be used for.
4. Never pay an application fee to a third party that promises funding.
5. If anything feels off, ask your local SBDC or SCORE chapter before sharing information.

• Who funds this grant, and where is it published?
• Does it ever have to be repaid, for example if conditions are not met?
• Is it paid upfront or as a reimbursement?
• What reporting is required, and for how long?
• Is it taxable? Grants can count as taxable income. The IRS tax guide for small business (opens in a new tab) covers business income in general, and a tax professional can advise on your situation.

A clear business plan makes most applications easier, because grant reviewers, like lenders, want to see what the money is for.