Free Money for Small Businesses

Where can I get grants to open up a small business?

The adage "there's no such thing as a free lunch" certainly applies here. The good news is that, yes, in some circumstances the government (at the state or federal level) as well as private foundations will provide grants to people trying to get a fledgling business off the ground. But that doesn't mean the money comes easy.

Fact is, despite the many books and CDs that promise a bounty of riches ripe for the picking, grant money is difficult to secure. "Don't send in your $39.95 for a list of ways to get guaranteed money from the government, because it doesn't exist," says Gene Fairbrother, a small-business consultant with the National Association for the Self Employed, a nonprofit organization. "The biggest misconception is that the federal government is there with an open checkbook."

The reality is that most government funding goes to state governments and other government organizations, such as the Small Business Administration (SBA), which then deploys it across its network of Small Business Development Centers. These, in turn, offer seminars and one-on-one advice sessions, and hire consultants who offer free advice on starting and managing a business. The government also provides support to other nonprofits with similar goals, such as the Service Corps of Retired Executives (SCORE) program, which offers free counseling on small-business issues. But these groups generally don't write big checks to people in need of start-up capital.

One way that the government does provide grant money to individuals, says Fairbrother, is through community block grants. These are grants allocated to a particular region (such as a city or a metropolitan area) where the government wants to promote growth, typically administered by that region's SBA office or other small-business nonprofit organizations. To qualify for a block grant, a start-up has to demonstrate the ability to create jobs for the area. For example, the federal government allocated millions of dollars for small businesses in New York City after the terrorist attacks of Sept. 11, 2001. But block grants aren't limited to disaster zones -; many states offer these programs in underdeveloped communities as well.

When looking for such grants, start in your own backyard, advises Fairbrother. Call the SBA office in your area or your local Chamber of Commerce. You also can set up a free consultation with a local SCORE counselor (these are retired business executives, many of whom have run their own businesses), who can offer guidance on searching for grants. Alternatively, you can e-mail a question to a consultant from the organization's Web site. Both the SBA and SCORE can also help you out with the hard parts, namely writing a grant proposal and creating a business plan.

You also should search for grants from private foundations, which by law are required to give away a percentage of their revenues each year in accordance with their mission statement, says Brien Biondi, chief executive of the Young Entrepreneurs Organization, a volunteer group of people under age 40 who own businesses with annual sales of $1 million or more. There are "thousands of foundations out there that give away millions and millions of dollars," he says. Just how much of it could come your way depends on the type of business you'd like to create. Most grants provided by private organizations go to "social entrepreneurs" -; those who want to start a nonprofit organization that will benefit the community, says Biondi. For help in researching private grants, the Foundation Center, a New York-based philanthropy research group, has put together an extensive list of grant-giving foundations and corporations.

If you aren't able to secure a substantial grant, don't lose faith. Most entrepreneurs today start their businesses by tapping their savings and getting some help from family and friends. In some cases, angel investors (strangers who are willing to invest in your idea) can be found though contacts made at trade shows and other networking events. The SBA also offers many types of loans to assist small businesses. Interest rates, collateral and other credit requirements vary for each program -; click here for an overview.

For more on running a small business, visit our small business center.