GRANTS – MYTH OR REAL?

Quoting two investment experts on MSNBC discussing grants for small business:
Ken Yancey, CEO of SCORE "I've been doing this for 16 yrs and never met anyone that got a grant."
Phil Town, bestselling investing author, "...must be 20-30 websites about U.S. grants. I think they're all scams."

Ever since the infamous late night infomercial with the brash, colorful hawker selling his book offering free government money, people believe grants are available just for the asking. This simply is not true.

Entrepreneurs in need of funding for their small business start ups flock in droves to the Internet in search of grants for free money. They are inadvertently wasting valuable time and effort looking in all the wrong places for their funding. Unfortunately, these types of grants, for business start ups, just don't exist. There are no grants for small business start ups or for for-profit small businesses.

Grants that are available are generally for very specific geographic areas and/or for specific development (environmental for example) and/or for non-profits. These grants are usually meant to create jobs for under developed areas.

While there are some grants available to for-profit start-up businesses through the federal SBIR and STTR programs, these are meant for highly specialized businesses. Both programs require the business to be engaged in the development of new, cutting edge products and/or technology that is in the national interest, so that eliminates the vast majority start ups. There are also a limited number of federal grants available to established for-profit businesses, but again, they must be engaged in the development of new technology or products or use agricultural products in an innovative way.

And yes, there are contests and private interest groups or organizations that offer "grants", but generally these are very small dollar amounts and the competition is fierce. The criteria is generally very stringent and may target a specific target group (such as female owned businesses).

To be clear, there are also no government grants available to minorities or disabled folks. Again, another myth.

So where do entrepreneurs get funding for a new (or existing) business? Traditional funding sources include SBA guaranteed loans that are still issued by banks. The requirements to qualify for such loans are very strict and for most, prohibitive. You must have on hand 20% of the total loan amount you require (in cash), plus strong collateral, plus industry experience (preferably management experience), plus excellent credit and the financial ability to repay the loan.

For those that don't qualify for SBA funding they turn to venture capital. Unfortunately venture capital is not available for the little guy. Venture capitalists are generally looking for high rate of returns and are only interested in million dollar pay outs.

Another traditional funding option is angel funding. Angels consist of friends, family and angel groups. However, many entrepreneurs discover to their dismay that there are no angels hovering over their start ups with cash in hand.

Some people are able to obtain funding through peer to peer lending groups. While this sounds like the answer to many folks, the fact remains that even peer to peer loans can be difficult to qualify for. You still need good to excellent credit scores. And the interest rates can be very high. For the most part these loans are given by groups of lenders, not a single individual. Most of these peer to peer lenders offer very small loans ($100 or so) to minimize their risk, so a requestor needs to attract many, many lenders to reach their goal amount. Again, most do not get funded.

But there is still hope. A new funding option is now available through peer to peer donations. This option cuts through all the red tape and is available to entrepreneurs regardless of credit scores. Entrepreneurs funding entrepreneurs is a new, but viable option. Learn more in the bio section at the end of this article.