Do grants really help small biz?

 

 

The great grant caper… who done it?

 

By James R. Taylor, Executive Director
Virginia Housing and Community Development Corporation

 

Nationwide (BlackNews.com) — It’s 8:00 am, just another day at the Main Street Small Business Development Center, located in Any City, America. The clock ticks away, minute-to-minute, hour-to-hour, staff are busy answering emails, responding to visitors, greeting walk-ins. And, finally, the call comes. Some aspiring entrepreneur or small business owner is calling for help. After the usual introductions, followed by some minor chat about the weather or some recent event, the counselor asks the question “How may I help you?” The caller responds “I’m looking for a grant to start my business.” And there it is…

It has to be one of the greatest, if not the greatest, capers of all times. Who started it? Where did it originate? Surely, someone or something must be responsible for such massive small business casualties. Why is this caller looking for a “grant”, while there are so many other vehicles to finance a small business? Are they starting a non-profit organization or a for-profit business? Is there some special consideration? Surely, they’re not suggesting someone just “give” them the money they need to start their business, are they? Unfortunately, the answer is YES. And therein lays the problem. Someone told them they can get FREE money to start a business, with no strings attached. The question is… Who? The counselor listens intently, and then explains there are no grants to start their business. “But a friend of mine got a grant”, says the caller. Again, what was the source of the grant funding? What was the grant for? How much? Details, what are the details?

It’s not that grants to help aspiring small business owners don’t exist. Actually, some really do. However, they have very specific criteria, which most small business owners do not qualify. For example, there’s the Individual Development Account (IDA) Program. An IDA is a matched savings account that enables low-income families to save, build assets, and enter the financial mainstream. IDAs supplement the savings of low-income households with matching funds drawn from a variety of private and public sources. IDAs reward the monthly savings of working-poor families who are trying to buy their first home, pay for college or technical/vocational school, or start a small business. Additionally, some IDA programs allow participants to save for home repairs, computers, automobiles, or retirement. These matched savings accounts are similar to 401(k) plans and other matched savings accounts but include the flexibility to save for a range of asset investments.

The Department of Health and Human Services currently funds the majority of IDAs through Assets for Independence (AFI), a competitive grant program administered by the Office of Community Services (OCS). OCS awards grants to non-profit entities and state, local and Tribal governments that administer AFI projects. Grantees are required to raise an equal contribution of non-Federal funds to match the Federal AFI grant. Project participants may receive up to $2,000 in federal matching funds. In order for participants to be considered eligible for an IDA through AFI, participants must be TANF eligible, EITC eligible, or have income at or below 200% of the poverty level. Since the inception of the program in 1999, AFI has enabled more than 60,000 low-income earners save through an AFI IDA. So, unless the small business owner meets the criteria, he or she will not qualify for this grant program. Visit www.vhcdc.org/resources to find an IDA program in your area.

Another option is the Small Business Innovation Research (SBIR) Program. The SBIR program is a federal program in which 2.5% of the total extramural research budgets of all federal agencies with extramural research budgets in excess of $100 million are reserved for contracts or grants to small businesses. In 2010, that represented over $1 Billion in research funds. Over half the awards are to firms with fewer than 25 people and a third to firms of fewer than 10. A fifth were minority or women-owned businesses. A quarter of the companies were first-time winners.

The Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization. Through a competitive awards-based program, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation’s R&D arena, high-tech innovation is stimulated and the United States gains entrepreneurial spirit as it meets its specific research and development needs.

Each year, Federal agencies with extramural research and development (R&D) budgets that exceed $100 million are required to allocate 2.5 percent of their R&D budget to these programs. Currently, eleven Federal agencies participate in the program:

* Department of Agriculture
* Department of Commerce – National Institute of Standards and Technology
* Department of Commerce – National Oceanic and Atmospheric Administration
* Department of Defense
* Department of Education
* Department of Energy
* Department of Health and Human Services
* Department of Homeland Security
* Department of Transportation
* Environmental Protection Agency
* National Aeronautics and Space Administration
* National Science Foundation

Each agency administers its own individual program within guidelines established by Congress. These agencies designate R&D topics in their solicitations and accept proposals from small businesses. Awards are made on a competitive basis after proposal evaluation. So, unless the small business owner is engaged in scientific or technological innovation and research, he or she will not qualify for this grant program. Visit www.vhcdc.org/resources to access information about this program.

Yet, another option is the Small Business Technology Transfer (STTR) Program. According to the U.S. Small Business Administration, “STTR is an important small business program that expands funding opportunities in the federal innovation research and development arena. Central to the program is expansion of the public/private sector partnership to include the joint venture opportunities for small business and the nation’s premier nonprofit research institutions. STTR’s most important role is to foster the innovation necessary to meet the nation’s scientific and technological challenges in the 21st century.”

STTR is a highly competitive program that reserves a specific percentage of federal R&D funding for award to small business and nonprofit research institution partners. Small business has long been where innovation and innovators thrive. But the risk and expense of conducting serious R&D efforts can be beyond the means of many small businesses.

Conversely, nonprofit research laboratories are instrumental in developing high-tech innovations. But frequently, innovation is confined to the theoretical, not the practical. STTR combines the strengths of both entities by introducing entrepreneurial skills to high-tech research efforts. The technologies and products are transferred from the laboratory to the marketplace. The small business profits from the commercialization, which, in turn, stimulates the U.S. economy. Visit www.vhcdc.org/resources to access information about this program.

Once more, unless the small business owner is seriously engaged in scientific research, he or she will not qualify for this grant program. So what grant program would the small business owner qualify for? Unless he or she qualifies for one of the above programs or some form of entitlement, such as Social Security Disability Insurance (SSDI), Social Security Insurance (SSI), Temporary Assistance to Needy Families (TANF), or Veteran’s Administration (VA) Benefits, the answer is… None!

There is one exception to the rule – an often used, and very popular community development tool called “Equity Grants” – provided by various entities to assist entrepreneurs to launch or grow their business. Equity Grants typically take the form of cash prizes, pro bono products and services, and tuition/training (financial) assistance. Most of the grants are awarded through business plan competitions by local faith-based and non-profit organizations, colleges and universities, and local government agencies. However, such grants may be considered income to the business owner(s) or company (if incorporated or a Limited Liability Company). The business owner(s) should consult an accountant for a determination and give serious consideration to the time and resources necessary to compete for this type of grant. It can involve considerable effort for what may amount to participating in a lottery – hundreds of entries, very, very few winners.

While the origin of pursuing grants to start a business is relatively unimportant, it is interesting to note the considerable publications promoting them as a must for aspiring entrepreneurs. Although such funding may help the business to validate its product or service idea (seed stage funding), rarely are such funds sufficient to actually launch the enterprise. Ideally, aspiring entrepreneurs and small business owners should spend some time learning about the various forms of capital and credit, determine the proper mix needed to launch and sustain their venture (from seed stage to startup), and structure their company to take advantage of them.
James R. Taylor is Executive Director of Virginia Housing and Community Development Corporation (VHCDC), a 501(c)(3) non-profit community development corporation. VHCDC is working to promote and support entrepreneurship, to advance entrepreneurship education and training, to connect disadvantaged small businesses to capital and credit, and to facilitate the commercialization of new technologies and services by small, women, and minority-owned businesses which have great promise for improving the economic welfare of our region. Visit VHCDC at: www.vhcdc.org for more information about VHCDC and the resources mentioned in this article.