Financial scams have become more convincing and common over the years, causing every phone call and email from an unknown contact to be greeted with justified suspicion. But if your small business has been cash-strapped, an out-of-the-blue offer for free funding might feel like a wish come true and break through your skepticism.
Don’t let it. Yes, small business grants offering money to help you grow your business exist. Unfortunately, so are grant scams that promise funding but actually steal your financial information. Here are some tips to help you avoid falling for a small business grant scam.
How to avoid a small business grant scam
Set aside money for future use in a savings account designed for business
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Don’t accept grants you didn’t apply for
Wouldn’t it be nice to just have money fall in your lap and not have to put in any work for it? Grant applications can be so tedious that some organizations hire professionals whose sole job is to write applications for grant funding.
Unfortunately, you’ll never win a grant you didn’t have to apply for. So if someone is reaching out to say you won a grant — and you know you never submitted an application for it — it’s probably a scam.
Don’t pay money to receive a grant
Legitimate grant providers won’t ask you to pay them so they can pay you. But this is a common tactic used by scammers to try to make a quick buck off of you by promising thousands in exchange for a payment.
Grants also don’t have to be paid back so if your “grant provider” is telling you you’ll need to pay back the grant money they provide, it’s not a real grant and is likely a scam.
Make sure the agency is a real grantor
This is where you might need to do a little detective work (which is worth it if it means you’ll keep your financial and business information safe from fraudsters). A tell-tale sign that the grant is a scam is that the agency isn’t a real grant agency at all.
It can be easier to confirm the legitimacy of a federal grantor by making sure you see it listed on grants.gov. However, non-federal organizations can also offer grants and these might be a little tougher to verify.
Some red flags to watch out for may include websites that were recently created and contain significant misspellings (sometimes scammers may try to mimic the look and feel of a well-known organization but have tiny, hard-to-catch misspellings in the name). Also, search the agency online to see if there are any reviews on it or if others have encountered it and believe it to be a scam.
How to get business funding
Receiving (legitimate) grants can help your business grow without needing to pay the money back like you would with a loan.
Here are some of the more popular, well-known grants for small businesses:
If your business can afford it, you may also consider a small business loan to cover some expenses. One lender, Kiva, offers microloans of up to $15,000 and you won’t have to pay interest on the loan if you apply for its U.S.-based loan program since Kiva is a nonprofit.
Kiva
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Types of loans
Peer-to-peer crowdfunded loan
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Better Business Bureau (BBB) rating
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Loan amounts
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Terms
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Minimum credit score needed
No minimum credit score required
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Minimum requirements
You must be 18, live in the U.S., use this loan for business purposes, not currently in foreclosure, bankruptcy or have any liens, and have a small number of your friends and family willing to make a loan to you (Nevada and North Dakota residents are not ineligible)
Pros
- Ability to borrow with no interest
- Loans are geared toward borrowers who are unbanked and have trouble qualifying for financial products
- Ability to market your product to 1.6 million lenders on Kiva
Cons
- You need to prove your creditworthiness by inviting friends and family to lend to you
- It can take a while to receive your loan since investors need to raise money
- No BBB rating
If you need more than just $15,000, though, consider other lenders like OnDeck. It offers funding amounts as high as $250,000 and the minimum credit score requirement is just 625. Of course, with any loan option, you’ll want to make sure your business has the cash flow to pay the monthly bill over the designated loan term.
OnDeck
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Types of loans
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Better Business Bureau (BBB) rating
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Loan amounts
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Terms
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Minimum credit score needed
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Minimum requirements
In business at least 1 year, $100,000 annual revenue, business bank account
Pros
- Potential for same-day cash disbursement (only available in certain states, for term loans up to $100,000)
- Top-tier A+ rating with the BBB
- Low minimum credit score
- Fixed monthly payments
- 100% Prepayment Benefit option, so you can pay your loan off early without any penalty or fee
Cons
- Doesn’t lend to businesses in Nevada, North Dakota or South Dakota
- Early prepayment fee if you don’t qualify for the 100% Prepayment Benefit
FAQs
Is it hard to get a small business grant?
It can generally be challenging to get a business grant because oftentimes, you’ll need to meet certain eligibility criteria and many grantors have rules around how the grant money can be used. Additionally, applications can be lengthy and it may take a while to hear back with a status update.
Can an LLC get grant funding?
LLCs are generally able to receive grant funding. However, if you run a nonprofit, there may be grants specific to nonprofits that you can apply for.
Can a new business get funding?
Whether you’re considering a grant, business loan or other types of funding, it’s often required that your business be active for a certain amount of time before applying. That time horizon can range from six months to one year so that makes it harder for newly launched businesses to get funding. You’ll have to check the specific requirements for each lender and grantor you consider.
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