Still Think That There Are No Government Grants For (For-Profit) Businesses?

Here is an excerpt from an Entrepreneurship Newsletter:

Q: My company just launched a health care product for post-surgery and emergency room care. The product has been well received in the medical community but I need money for marketing and new product development. I'm finding that our product line is just not sexy enough for local venture funds even though we solve major patient care issues in all hospitals. I'm about to give up on the investor route and just get a loan from the Small Business Administration. Is there anything I'm missing?

A: Raising capital for an entrepreneurial business is very much like navigating bad rush-hour traffic. Yes, you want to drive fast, pass other cars and avoid slowdowns. But sometimes when entrepreneurs are so determined to drive in one direction, they never see how taking a different route can get them to their destination.

Think of it this way. When the state Route 520 bridge is clogged, practical drivers with an opportunistic outlook take Interstate 90. So where is your I-90 funding alternative?

Let's start with grants for the small business.  These grants are available from various departments of the federal government, such as the Department of Defense, Department of Energy, etc. Each participating department sets specific priorities, or topics of interest, for its research dollar. Small companies that best match these broad research topics receive grant awards.

I like this grant program because it can provide "free and clear" capital for innovative, for-profit companies. This means that business owners like you can receive funding without repayment obligations or equity dilution. This is a better deal than an SBA loan or a venture fund investment.  Grant recipients' only obligation (not to minimize this) is to complete the proposed development work on time and within budget.

These grants are funded in two phases: Phase I awards provide up to $100,000 to help businesses test the technical feasibility of a new product or service idea. This is extremely valuable to entrepreneurs who pursue less sexy business goals or have been told they are not "far enough along" to warrant serious attention from investors.

Top-performing Phase I grant recipients can then apply for a second grant of up to $500,000 to help bring their technologies to market. I'm told that there is considerable emphasis today in funding technologies that can meet U.S. market needs plus serve our military interests in Iraq. To the extent your technologies can potentially improve the care of U.S. causalities, you may ride the express lane to this kind of grant funding.

It's important to know that the administrators of these grant programs are supported by an elite team of technical advisers. They are highly knowledgeable in specific technical areas and favor well-researched, well-reasoned applications. They also will carefully evaluate the likely ability of a company's management team to build a prosperous business. Much like venture fund investors, these administrators want to fund companies with the best chances of long-term commercial success.

To improve your funding prospects, I encourage you to learn as much as they can about their funding priorities before starting proposal work. Identify the names of companies that have received this same type of grants from your targeted federal government agency. Speak to the "principal investigator" of several approved grant projects. Also ask how to boost the perceived technical stature of your investigative team.

There is one other benefit to this grant program. With extra capital in hand to achieve meaningful business progress, most grant recipients find they have greater appeal to investors and lenders. So don't give up. There are many ways to reach your destination. You can do it!