Getting approved for a grant or a loan is an exciting opportunity for your business. But before you accept the offer, it’s important to be mindful of some of the hidden costs that may hide beneath the surface.
The funding you receive for your startup can rapidly accelerate the growth of your business. While it is tempting to glaze over the fine print, carefully review every part of an application or agreement to ensure the conditions of the grant or loan are in the best interests of your business—now and in the future.
Some grants work as reimbursements and others have repayment terms if certain conditions are not met. Loans that require collateral such as personal assets or a cosigner, introduce a higher level of risk and often come with higher interest rates as well. Working with an experienced professional in this area can help mitigate risk by helping you better understand your grant or loan terms.
Read on to uncover more considerations involving the hidden costs of grant or loan funding and how this information can help facilitate a smoother funding experience and reduce unwanted surprises down the road. -Ron Flavin
From Ron Flavin this month
While grants, cooperative agreements, other non-traditional government-backed funding instruments such as low-interest loans (and even traditional bank loans) can be great from a cash-flow perspective, people are often unaware of the administrative and other responsibilities that come with these sources of funds.
First, if your company is awarded non-dilutive funding such as a grant or cooperative agreement, the reporting and compliance requirements can be onerous and overwhelming. Additionally, generally do not allow for changes to the budget or scope of work without prior approval from the program officer. This process can be difficult, time-consuming, and frustrating, to say the least.
And if your business is awarded a Small Business Technology Transfer (STTR) grant or almost any type of cooperative agreement, there will be a higher level of government involvement in your project than a regular grant.
And for all of these--including government-backed loans the reporting and compliance requirements can be quite complex, difficult-to-understand, time-consuming and sometimes, a massive administrative burden.
While government grants, cooperative agreements, and other types of non-traditional government-backed funding instruments can be appealing from a cash flow perspective, the funding program priorities can sometimes divert your startup or growing business from its core mission or vision for the future. Before applying for any of these types of non-dilutive opportunities to secure capital, be sure that the funding program is a solid strategic fit for your company’s mission and strategic vision.
Lastly, for any type of loan, be aware of how paying it back will impact your cash flow. I’ve seen plenty of businesses fail because they could not maintain cash flow sufficient to pay back the loan.
Those are my key tips to consider before applying for a government grant, cooperative agreement, non-traditional government-backed funding instrument, government-back loan, or traditional loan.
Startup funding in 2020 is bright for both new and established companies. There are plenty of federal grants and corporate grants available in the US this year to provide startup funding that will help small businesses to succeed and flourish.
States give away billions of dollars each year in business grants, and some states are especially generous with their programs. The following are the six best states for business grants, including a particularly popular grant program in each of the six states.
Important Industry Happenings
- 9 Little-Known Business Loan Fees Hidden in the Fine Print (Via Forbes)
- 8 Hidden Costs of Starting and Running a Business (via Nasdaq)
- Hidden Costs of Capital Grants (via DH Leonard Consulting)