Far too many small business owners seeking capital to grow their companies are under the impression that they have only two options: taking out loans or selling equity for investment dollars.
In both cases, small business owners who have dedicated their lives to their business and employees have to give up something valuable — precious money that could be reinvested in their businesses or, even more precious, ownership in their businesses themselves.
But there is another option, an option that is non-dilutive for small businesses and as such is perhaps the most valuable vehicle for capital investment available to small business owners in America today.
A portion of taxpayer dollars taken in by the IRS — a significant amount of which comes from small business owners — is allocated to grant programs designed to spur economic growth and development in diverse categories like real estate, tech, energy, and start-ups.
A company that builds housing, for example, could seek a federal grant to build affordable housing. A new tech company could apply for one designed to invest in technological innovation, and a burgeoning start-up business could receive a grant allocated to increasing jobs.
In short, there is a tremendous amount of free money available for the taking.
Unfortunately, although these grants are available to all, most federal grant money is at present sucked up by major Fortune 500 companies, including giants like Amazon, Tesla, and Facebook. Just as these companies are the ones that are able to take the most advantage of tax breaks and refunds due to their having the resources to navigate the byzantine tax code, so too do they have veritable armies at their disposal to handle grant applications.
While the federal grant application process might not be quite as complicated as the U.S. tax code, it is nevertheless time consuming. It is important to understand that it is an extensive process — it’s not like going to the bank to get a line of credit.
Business owners must be sure that they’re prepared to properly apply for grant funding, be aware of any matching grants from private foundations, ensure they have up-to-date and accurate financials, and have a clear idea of on which project(s) the grant funding will be spent, including bids, budget, and scope of work. This allows a small business owner to create the best narrative and the best case for why his or her project should be considered for the funding. Simply put, the more information a grant applicant can provide, the better the success rate.
But, just as with tax breaks and refunds, many small business owners lack the resources or time to spend applying for federal grants, if they’re even aware of applicable grants in the first place. By necessity, they spend most of their time hustling and working and building and nurturing their businesses.
Thankfully, there are services available to small business owners to give them the same tools the big Fortune 500 companies use.
“We feel that federal grants are such an important part of the capital stack for businesses,” said Jamie Lujan, Head of the Grant Services Division at Engineered Tax Services. “These are taxpayer dollars that our small businesses have paid out, and they are doing such important work, whether building new infrastructure in our communities, creating jobs, or innovating new technologies. We really want to be able to help them secure funding that’s non-dilutive.
“Often small business owners will take on equity funding where they’re having to trade off interest or equity in exchange for cash,” Lujan continued. “Grant funding allows them to really add to their capital stack in a significant way other avenues do not.”
While grant funding can be an important tool for all small business owners, it is especially important for Black and Latino businesses. The unfortunate truth is that minority business owners are nearly twice as likely to be denied loans, according to the Federal Reserve. Sadly, the Federal Reserve also found that a staggering 37.9 percent of Black business owners said that their primary reason for not applying for a loan was that they were “discouraged” — that is to say they believed that they would be turned down for a loan even if they applied.
Given this sorry state of affairs, alternative sources of capital beyond loans are vital for the success of minority business owners in America. As a Latino entrepreneur, it is particularly important to me that other minority small business owners are afforded the opportunities to achieve the same success I have.
At the end of the day, the question for small business owners is a simple one. Why borrow money or sell shares in your company when you can access free money?
Julio Gonzalez is the CEO and Founder of Engineered Tax Services, Inc.
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