Funding Your Business

Getting Grants to Fund Your Business

Public Grants

Private Grants

A lack of funding is the main reason for the failure of most small businesses. According to a 2010 credit survey conducted by the National Federation of Independent Business, 36 percent of all small businesses had at least one outstanding business loan. For some businesses, qualifying for a small business bank loan or line of credit is difficult or impossible thanks to government banking regulations and credit controls. To address this business-financing problem, federal, state and local governments now offer grant programs.

Step 1

Define your business idea. Before applying for any government grant, all small businesses must have a comprehensive and financially viable business plan. A business plan is a required part of any grant application and most government agencies will not consider a grant proposal without one. A business plan offers well-researched and detailed information regarding the business, its operation and financial needs. Business owners can receive free business assistance through their local branch of the U.S. Small Business Administration. U.S. Small Business Administration Answer Desk 1-800-827-5722 This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

Step 2

Determine your status. The government also offers special grant programs for women, the disabled, minorities, American Indians or veterans. Business owners who fall into one or more of these categories can take advantage of special grants and an accelerated grant application process. The grant's application requirements explain the documentation required to claim special status.

Step 3

Consider becoming a nonprofit. Some business models work nicely as a 501c nonprofit business and the government awards the majority of grant programs to nonprofit organizations. For example, a child daycare center designated as a nonprofit can apply for multiple grants pertaining to child welfare, nutrition and education. Also, nonprofit operators receive a salary and other benefits, such as healthcare, that for-profit business owners may not have. The U.S. Internal Revenue Service can provide information on the current 501c requirements. U.S. Internal Revenue Service 1-800-829-1040 irs.gov

Step 4

Search for grants. The federal government offers a number of discretionary grants through various agencies. For example, the Department of Interior and the Department of Agriculture offer grant programs to advance the areas of conservation and agriculture. Grants.gov is the official federal grant website for federal, state and local grant programs. Business.gov offers financial information from state, local and federal departments. Make sure to read the grants synopsis, the applicant requirements and change notifications before applying.

Step 5

Register as a grant applicant with the federal government. All federal grant applicants must preregister at Grants.gov in order to apply. To register visit Grants.gov and follow the prompts under "Get Registered." After registering, there is a wait time of a few weeks for registration approval. Applicants then receive a user's name and password to access the federal grant application system. For state grants, the grantor agency provides grant applications. Directions on applying for state grants are included in the grant's synopsis.

Step 6

Enter the federal grant application system and download the grant application and instructions. At Grants.gov, follow the prompts under "Apply for Grants." Reference the grant's synopsis and make sure to have the grant's funding opportunity number, its title and the administering agency's contact information. Download the application and read the grant's instruction packet, which contains all the required application forms. For state grants, be aware that most states do not provide the required forms within the grant's application packet so applicants must request these forms from the grantor agency. Read the grant's instructions to determine the required forms.

Step 7

Write a grant proposal. All grant applications include a grant proposal stating how the business plans to achieve the grant's designated goal. For example, a daycare center applying for a nutritional grant may propose that the nutritional grant money will provide nutritional education materials to parents and students. Grantors will expect a business plan attached to any grant proposal financing a for-profit or nonprofit business. For more information, applicants can research books that detail how to write and format grant proposals. States also require a grant proposal be attached to any grant application.

Step 8

Fill out the optional grant forms. Most federal grants have a series of optional forms for applicants to fill out. Take the time to fill out the survey on Ensuring Equal Opportunity for Applicants and other optional forms, as any additional information a grantor has on an applicant and her proposal can help increase the chances for approval.

Step 9

Review the grant application, grant proposal, business plan and all forms before submitting. Wrong or missing information can affect the chances for approval. Follow all application instructions and have someone else review the documents before uploading the application package at Grants.gov. Applicants must have a Grants.gov user name and password to submit a completed federal grant application. At the state level, the grant's application instructions will provide information on where to submit the proposal.

Step 10

Read the email from Grants.gov. Expect an email and an application tracking number from Grants.gov confirming the grant application upload. This application tracking number is the only way to track a grant application during processing. At the state level, all grants have an administrative contact.

Business Credit Due Diligence

Tools - Typical Due Diligence Request List: Business Loans

Industry
1. Industry magazines, studies, etc. describing the market.
2. Recent analysis from accountants, investment bankers, consultants, and other third party information on the industry and company.
3. Detailed list of all competitors and estimated market share.

Corporate Affairs (New Corporation)
1. Certificate of Incorporation
  1. Bylaws
  2. Long form good standing and tax certificates in the state of Incorporation
  3. List of jurisdiction the company is qualified to do business or is otherwise operating
  4. Form of Stock certificates
2. Minutes
  1. Board of Directors meetings
  2. Shareholders meeting if any
  3. Special Committee meetings
3. Financing
  1. All documents and agreement evidencing borrowings, whether secured of unsecured, including loan and credit agreements, promissory notes, and other evidences of indebtedness and all guarantees.
  2. Bank letters or agreement comfirming lines of credit, including covenants.
  3. Loans and guarantees of third parties obligations.
  4. Credit agreements.
  5. Correspondence with lenders, including compliance reports.
4. Lease agreements
  1. Financing leases and sale lease back agreement
  2. Conditional sale agreements
  3. Equipment leases
  4. Correspondence with lessors and landlords

Capital Stock
1. Securities authorized and outstanding
2. Covenants of preferred stock
3. Agreement relating to the purchase, sale or issuance of securities
4. Shareholder list indicating ownership

Research and Development
1. All patents, trademarks copyrights and other tangible assets
2. R&D costs last 5 years and projection next 3 years

Personnel and Labor
1. Employment contracts
2. Consulting contracts
3. Union contracts
4. Loans and guarantee of personnel , directors, officers
5. Employee benefits, vacation pay and severance polices
6. Employee stock option plans
7. List of stock options, vesting date and termination date
8. Employee size, turnover, absentee history
9. Employee adverse actions
10. Personnel manuals

ERISA
1. Pension and profit sharing plans
2. Deferred compensation plans
3. Other employee benefit plans

Management
1. Salaries and bonuses
2. Other benefits

Organizational Chart
1. Management structure
2. Officers and directors list

Legal
1. All litigation past 5 years and present and pending
2. Regulatory compliance
3. Environmental concerns, proceedings
4. Citations and notices from governmental agencies
5. Pending investigation
6. Government permits
7. Reports to Governmental agencies

Real Property
1. Deeds
2. Lease and subleases
3. Zoning variances
4. Easements, restrictions and other encumbrances
5. Recent property surveys
6. Title Insurance policies
7. Legal description
8. Recent appraisal

Sales and Marketing
1. Sales organization chart
2. Sales and marketing materials
3. Sales commission plan
4. Sales allowances and returns
5. Warranty and consignment policies

Other Agreements
1. Marketing agreements, including sales agents, dealers, and distributor agreements
2. OEM pricing agreements
3. Governmental contracts
4. Purchase agreements
5. Joint venture and partnership agreements
6. License agreements
7. Franchise agreements
8. Service agreements
9. Equipment service agreements
10. Construction agreements
11. Advertising agreements
12. Acquisition and disposition of companies and assets
13. Confidentiality and non-disclosure agreements
14. Sample forms of purchase and order invoices
15. Indemnification agreements
16. Intercompany documents, subsidiary agreements
17. Insider agreements
18. Form of product warranties
19. Other agreements material to the business of the Company

Suppliers and Customers
1. List all major suppliers and customers and their annual dollar amounts purchased
2. Purchasing practices and accountability

Insurance
1. D&O
2. Premises
3. Workers compensation
4. Property
5. General Liability
6. Business interruption
7. Product Liability
8. Key man
9. Automobile
10. Equipment
11. Loss experience past 5 years on all insurance

Financial Information
1. Balance sheets and income statements past 5 years
2. Quarterly balance sheets and income statement past 2 years
3. Budget for current fiscal year
4. A chart of accounts
5. Pricing policies
6. Accounts receivable analysis and aging
7. Accounts payable analysis and aging, including trail balances
8. Most recent business plan
9. Copies of past 3 years business plan
10. Copies of changes in accounting policies
11. Copies of independent management letter comments
12. Correspondence with independent accountants
13. Reports from outside consultants on the company's business and financial condition
14. Reports and material prepared for the Board of Directors past 5 years
15. A summary of extraordinary and non-recurring expenses for the past 5 years
16. A summary of bad debt experience and management explanation for the past 5 years
17. A summary of significant acquisition or disposal of property and equipment the past 3 years
18. Appraisal of equipment and fixed assets or tax assessment valuations
19. List all material contracts in process including total price cost incurred to date estimated cost to finish and estimated profit
20. List open purchase commitments
21. Analysis if the following:
  1. Other income (expense)
  2. Prepaid expenses
  3. Deferred charges
  4. Other assets
  5. Accrued liabilities
  6. Other liabilities
22. Analysis of the following:
  1. Warranty
  2. R&D
  3. Advertising and Promotion
  4. Bonus and profit sharing
  5. Pension benefits
  6. Repairs and maintenance

Tax Matters
1. Federal, State, and local tax returns last 3 years
2. IRS audits

Projections
1. Sales
2. Cash flow
3. Capital expenditures
4. Operating expenses

Miscellaneous
1. Press releases and other third party clippings
2. Company newsletters
3. List of employees who have left the company the past 3 years
4. Work safety reports

All other documents or information which, in your judgment, are significant with respect to the business of the company or which should be considered and reviewed in making disclosures regarding the business and financial condition of the company to prospective investors.

Getting Business Credit

While there are many ways to fund your business; not all people have the resources to borrow; maybe your personal credit is negative, or you don't have personal savings or even friends and family that are willing to lend you money. Certainly if these are all the case, you can't get a bank loan.

There are, however, some ways to gain business credit even if your personal credit is negative.

Here's how:

First, setup a corporation or an LLC. These two forms of business are different than operating as a sole proprietor or partnership, because they are separate entities not attached to your personal credit information. This means that you can get a separate line of credit for the business and the businesses' credit score will not affect your personal credit, and vice versa, your personal credit will not affect the business.

Second, ensure your business is 100% compliant with the requirements of the credit market. Make sure that you have all the licenses that you are required to obtain. Even such simple things as ensuring you have a phone line can be important. For a complete list see Business Credit Due Diligence.

Third, register your company with the business credit bureaus. These are Dunn and Bradstreet, Experian Business, Business Credit and Equifax Business.

Fourth, determine if there are credit bureaus specific to your industry. For example, the transportation industry has TransCredit, the floral industry uses Red Book Credit Services and the mariner industry utilizes Lloyd's MIU. CreditWorthy.com has a link to each reporting agency and the industry it serves.

Once you've done this, you can obtain an FIN or EIN.

Third, once you are compliant and have done your due diligence, register your company with the business credit bureaus. These include, but are not limited to Dunn and Bradstreet, Experian Business and Equifax Business.

Fifth, create the documentation required to get credit. First, you'll need a business plan. Click here for information about creating your business plan. Other financial documents such as an operating budget or financial plan will also be necessary.

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