It seems like everywhere you look, there’s another article about the latest startup to secure millions in venture capital funding. While it’s true that VC funding is one way to finance a new business, it’s certainly not the only option. In fact, according to Entrepreneur, only about 0.05% of small companies raise startup venture capital.
So, what are the alternatives?
Contrary to popular belief, startup funding is not just about “seed funding,” “unicorns,” and “supergiants,” as the public perception is often depicted. The truth is that there are many different ways to finance a new business, each with its advantages and disadvantages.
The key is to find the option that best suits your particular situation. Whether you’re looking for venture capital, angel investors, or government grants, this article will break down everything you need to know about securing funding for your startup.
What is a small business grant?
One option for funding your small business is to apply for a grant. These grants can come from nonprofit organizations, federal, state, and local government agencies to private companies. The amount of money available from each source varies, but the funds can be used for various purposes, such as startup costs, inventory, marketing, or even employee training.
Unlike loans, grants do not need to be repaid, making them an attractive option for many small businesses. However, it’s important to note that grants are not easy to come by, and there is often much competition for the limited number of available grant funds.
What types of grants are available?
Although big businesses tend to get most of the attention regarding funding, several grants are available for small businesses and startups.
The average small business requires about $10,000 of startup capital. With this in mind, it is pertinent that if you do not have personal savings to cover these initial costs, you seek other alternatives for raising the capital you need. Government grants are one option that can provide the financial boost your business needs to get off the ground.
Some grants may be awarded for specific purposes, such as expanding into a new market or developing a new product. Other grants, such as working capital or disaster relief, may be awarded based on need. Here are some examples of the types of grants you might be elidable for:
SBA Grants
The U.S. Small Business Administration was created in 1953 as an independent agency of the federal government to help Americans start, build, and grow businesses. Its mandate is to strengthen the economy by providing tools to help start and grow small businesses, which can then create jobs. One way the SBA helps small businesses is through grants. SBA grants can be used for various purposes, including expanding or starting a business, conducting research, or developing and marketing new products or services.
If you’re interested in applying for a small business grant, the first step is to research which grants might be available. The U.S. Small Business Administration (SBA) is an excellent place to start your search. The SBA offers various grants for small businesses, including the 7(a) Loan Guaranty Program and the Microloan Program. to name a few. Here are some other programs you may also want to consider applying for:
SBIR Grants (Small business innovation research)
The SBIR program is an excellent opportunity for small businesses to get grant funding for innovative research and development projects. The program has 11 government agencies with varying eligibility requirements, so there is a good chance that your business will be eligible for at least one of them.
The application review process is also competitive, which means that only the most innovative and well-planned projects will be funded. This grant is an excellent way for startups and small businesses to get funding for new and unique projects. So, if you are thinking about applying for this grant, be sure to do your research and develop a strong proposal.
Small Business Technology Transfer Program (STTR)
The SBIR and the STTR programs are both federal grant programs that aim to help small businesses succeed by connecting them with funding. The critical difference between the two programs is that the STTR program requires applicants to partner with a nonprofit research institution during the first two phases of development. This requirement encourages collaboration between small businesses and research institutions, which can lead to more innovative solutions.
The STTR program may be an excellent option for startups or small businesses developing new technologies to raise money. With grants starting at $150,000, it can provide the boost these businesses need to get their products off the ground. And because the program is specifically geared towards encouraging innovation, securing funding through this program may be easier than other grant programs. So, if you’re a small business or startup working on developing new technology, the STTR program may be worth considering.
Additional kinds of federal grants
- NIFA Grants (National institute of food and agriculture)
The NIFA Grants program offers competitive grants to small businesses that are working on advancements in the agricultural field. This branch of the Department of Agriculture provides funding for high-quality research centered on forestry, food science and nutrition, aquaculture, biofuel products, animal protection, and more.
The grant program is designed to help startups and small businesses with the costs associated with conducting research and developing new products. By providing financial assistance, the NIFA Grants program allows companies to continue innovating and pushing the boundaries in the agricultural industry. This benefits the businesses themselves and helps advance the state of agriculture as a whole. The NIFA Grants program has a proven track record of helping startups and small businesses succeed while positively impacting the agricultural industry.
- (FAST) Federal and State Technology Partnership Program
The Federal and State Technology (FAST) Partnership Program is a joint effort between the federal and state governments to promote entrepreneurship and small business growth in underrepresented areas. The program funds organizations to execute state/regional programs that improve proposal development and team creation. It also includes assistance that leads to the commercialization of technology developed through SBIR/STTR program funding. And it forms or encourages relevant mentoring networks to provide business advice and counseling.
By increasing the number of proposals and awards from these groups, the FAST Partnership Program helps to level the playing field in the tech sector and pave the way for more innovation and economic growth in underrepresented communities. By supporting entrepreneurship and small business growth in underrepresented areas, the FAST Partnership Program is working to level the playing field for all businesses.
- (PRIME) Program for Investors in Microentrepeneurs
The PRIME Program for Investors in Microentrepreneurs is a grant program that provides funding for private, nonprofit microenterprise development organizations. The PRIME Program aims to foster the development and growth of economically self-sufficient microentrepreneurs by providing technical assistance, business training, and capital.
The program offers grants on a competitive basis to eligible entities, focusing on those serving disadvantaged groups, such as women-owned businesses, minorities, and veterans. Priority will be given to projects demonstrating a commitment to providing quality services and assistance to their target population.
How can I qualify for a small business grant?
There are numerous federal, state, and local government agencies, as well as private foundations, that offer grant programs for small businesses.
The best place to start your search is Grants.gov, which lists over 1,000 grant programs from 26 different federal agencies. Once you’ve found a few grant programs for which you might be eligible, it’s time to start preparing your application.
To increase your chances of success, it’s essential to research and understand the eligibility requirements. Qualifying small businesses must typically be classified as minor by the Small Business Administration (SBA). This classification is based on factors such as annual revenue and the number of employees. In addition, businesses must usually be for-profit and located in the United States.
Startups may have an easier time qualifying for grants if they demonstrate that they have a clear business plan and are committed to long-term growth. Furthermore, businesses should be aware of the available types of grants and target those most relevant to their needs. By taking these steps, companies and startups can significantly increase their chances of getting awarded a small business grant.
What are other ways I can raise capital?
There are several ways that eligible small business owners can raise capital beyond small business grant programs. While grant programs can be a great way to receive funding, other opportunities are also available. Here are some alternatives to consider:
Venture Capital
Venture capitalists are individuals or firms that invest in startup companies and small businesses that have high growth potential. VCs provide startup capital in the form of equity financing, venture debt, and mezzanine financing. In return, VCs typically receive a minority ownership stake in the companies they fund. VC funding can be used for various purposes, such as product development, hiring new employees, marketing, etc. In addition to financial support, VC firms provide valuable resources and mentorship to their portfolio companies.
VCs typically evaluate potential companies based on their business model, management team, market opportunity, and competitive landscape. They also consider the company’s stage of development, as early-stage companies are generally considered riskier than later-stage companies. VCs typically invest in companies that are in industries they are familiar with and have a good understanding of the risks and rewards involved.
While venture capital can be an excellent way for startups and SBs to secure funding, it is essential to remember that VCs want to profit from their investment. As such, they will often push for a higher share of the company’s equity than other investors.
Equity Crowdfunding
Equity crowdfunding is a method of raising capital in which businesses offer equity ownership in exchange for investment from the general public. This option can be ideal if you don’t want to give up too much equity in your company or if you cannot attract traditional investors. Unlike conventional forms of crowdfunding (such as Kickstarter), equity crowdfunding allows anyone who invests to become a partial company owner. This type of fundraising has become increasingly popular in recent years thanks to the JOBS Act of 2012, which made it easier for companies to solicit investment from the general public.
Incubators/accelerators
An incubator is an organization that helps startups grow by providing them with office space, mentorship, and access to resources such as funding and networking opportunities. On the other hand, an accelerator is similar to an incubator but is generally more focused on helping startups reach key milestones quickly so they can attract additional investment. Many accelerators also have an equity stake in the companies they work with but can offer lots of mentorships and invaluable coaching in return.
M Accelerator can help
MAccelerator is an excellent resource for deciding which funding option is right for your business. We offer many resources and programs for small businesses and startups that provide mentorship and coaching, company funding opportunities, pitch events, workshops, and so much more.
Please visit our programs page for information on small business and startup resources. We also offer professional guidance that can help you starting from the grant writing process to building a business around your product. So whatever stage you’re at in your journey, we can help you take the following steps toward success.
