Grants are the toughest to get and have the most stringent requirements. Grants require a written grant proposal (almost like a business plan), defining the specific project for which the grant funds will be used, detailing how this will benefit the granting organization, describing how the project will be managed (including a project timeline with build-in review meetings and reports) and delineating the past relevant experience of the key members of the project management team.
In the event you do receive a grant, be prepared for mandatory reports, reviews and site visits by the granting organization to ensure that its funds are being used as promised.
Because these are government funds, politics always play a role. Securing these funds does not require dealing with financiers; it requires dealing with bureaucrats and politicians.
Bureaucrats usually won't consider your company's growth potential, the importance of your proposed project or your experience. Instead, they will consider how well your proposal meets the requirements of their confidential rule book.
This closely held internal document specifies certain conditions required for approval (only a few of which may be known to you). These conditions do not guarantee approval, they merely qualify you for serious consideration.
Examples of these conditions might include: Does your proposal create at least (a specific number) of new jobs paying at least (a specific wage)? Does your proposal have strong written backing from your city government and area politicians? Is your business on their list of targeted growth industries?
You need to understand as many of these conditions as you can before making application for funds. Visit with government managers familiar with the funding sources and area politicians and economic development directors to gain more insight. You will also want to sell your proposal to your city government, chamber of commerce and area politicians to gain their written endorsement of your project. Once you have met the conditions of the bureaucrats' rule book, you will have to sell your proposal to the agency that manages the funds.
As you move forward, remember that proposals are rarely a perfect fit with the agency's internal requirements, so be willing to compromise on terms to make your proposal more attractive to the agency. Also, government money always comes with strings attached, so never sign an acceptance document without first ensuring that you understand all the strings and their ramifications. Here are examples of what can go wrong if you rush into the process too blindly and too fast:
- The CEO of a flourishing manufacturing business had been involved with his state's economic development organization for years. He knew all the key executives. He also knew that a sponsoring city should apply for an economic betterment grant. However, when he decided to expand his business, he submitted an abbreviated proposal directly to the committee, assuming his stature with committee members would ensure speedy approval. He was turned down.
- An entrepreneur launched a company and approached his state's economic development office for potential support. He applied for a forgivable loan program specifically tied to the creation of jobs. However, because his business was expanding, he began to hire the extra people before his application was considered. When his application came before the committee and they learned he had hired the people, the loan application was rejected. They reasoned that he didn't need their funds to create the jobs if he had already created them.
- Another business owner's struggling company had some debts, but it also had an exciting high-tech product with a bright future. He sought a state product-development loan to bring his new product to market. He was granted the loan. However, the loan agreement contained a clause specifying that the proceeds could be used only for future costs associated with the new product. He ignored the fine print and used a portion of the first loan installment to pay off debts. As a result, he never saw the rest of the funds and is still struggling.
Impatient or poorly advised entrepreneurs perceive that securing government funds is easier than conventional financing. Not so. Government money is more difficult to secure, and it always comes with more restrictions.
However, if you are still considering applying for government funds, start by visiting your banker, your chamber of commerce, local economic development groups and other business people who have run the gantlet to develop a more realistic assessment of your road ahead.
