Handbook / Starting out on your own
Small business grants: where they come from and how to avoid scams
"Free money to start your business" is one of the most searched ideas for new owners, and one of the most misunderstood. Grants exist, but they are narrower, more competitive and more specific than most advertisements suggest. This guide explains where real grants come from, who they are for, and how to avoid the scams that target people looking for them.
The SBA position
The US Small Business Administration is clear on its grants page: it does not provide grants for starting and expanding a business. Instead, SBA grants go to nonprofits, resource partners and educational organizations that support entrepreneurship through counseling and training.
That matters for two reasons. First, if you are looking for a grant to cover rent, equipment or your own pay while you start, a federal SBA grant is not the route. Second, anyone offering you an "SBA startup grant" in exchange for a fee is likely running a scam.
What the SBA does offer, indirectly, is free or low-cost help through resource partners, plus loan programs through lenders. See SBA loans for startups.
Research and development grants
The SBA highlights two federal programs for businesses doing scientific research and development:
- Small Business Innovation Research (SBIR)
- Small Business Technology Transfer (STTR)
These programs fund research that meets federal research and development objectives and has high potential for commercialization. They suit technology, science and engineering businesses with a genuine research project, not general service businesses.
State and local programs
State, county and city economic development agencies sometimes offer grants or similar support, such as:
- grants tied to particular neighborhoods or downtown areas
- programs for specific industries a region wants to grow
- matching funds for equipment, storefront improvements or training
- support after disasters
Availability changes often and many programs open for short windows. Check your state economic development agency and your city's business office, and ask a local resource partner what is currently open.
Private and corporate grants
Companies, foundations and business associations run grant competitions and awards. They are usually:
- competitive, with many applicants for a few awards
- tied to a theme, such as a sector, a location or a type of owner
- dependent on a written application, a pitch or both
Read the rules carefully, including what rights you grant to the organizer and any publicity requirements.
Is a grant worth the time?
Grant applications can take many hours. Before applying, ask:
- Do I clearly meet the eligibility rules?
- Does the grant fund what I actually need?
- What reporting does it require afterward?
- How many awards are made, and how many people apply?
For many new businesses, starting small, pre-selling, or using savings and customer revenue is faster and more reliable. The guide to starting with little money covers those options.
What a good application includes
- a clear description of the business and the problem it solves
- how the money will be used, with a simple budget
- evidence of demand, such as customers, preorders or letters of support
- measurable outcomes the grant will produce
- your relevant experience
A short business plan helps here; see the one-page business plan.
Spotting grant scams
Scammers target people looking for grants. Common warning signs:
- unsolicited contact saying you qualify for a grant you never applied for
- upfront fees for "processing", "taxes" or "release" of funds
- requests for bank details, passwords or gift cards
- pressure to act fast
- messages that look official but come from personal or unusual email addresses
The SBA notes it only communicates from email addresses ending in @sba.gov, and says that if someone claims to be from the SBA without an official address, you should suspect and report fraud. Legitimate grant programs do not charge you to receive money.
Tax treatment
Grant money may be taxable income for a business, depending on the program. Keep the award letter and ask the grantor or a tax professional how to report it.
Keep records of awards
If you receive a grant, keep the award letter, terms and reports together. Many grants require you to show how the money was spent.
The SBA does not fund startups with grants; look at research programs if you do R&D, check state and local agencies, apply only where you clearly fit, and never pay a fee to get a grant.
Questions people ask
Does the SBA give grants to start a business?
No. The SBA says it does not provide grants for starting and expanding a business. It funds organizations that provide counseling and training, and runs research grant programs.
What are SBIR and STTR?
Federal programs that fund small businesses engaged in scientific research and development with potential for commercialization.
Are there grants for specific groups?
Some state, local and private programs target particular industries, locations or owners. Read the eligibility rules of each program directly.
How do I know a grant offer is a scam?
Be suspicious of unsolicited offers, requests for fees or bank details, and messages not from official government addresses. The SBA notes it only communicates from email addresses ending in @sba.gov.
Do this week
- Decide whether your business genuinely fits a grant program's purpose.
- Check your state and city economic development agency for local programs.
- Contact a free SBA resource partner for advice on local funding.
- Prepare a short business plan, budget and use-of-funds statement.
- Treat any unsolicited grant offer or upfront fee as a likely scam.
Sources read for this page
Published November 8, 2026. Sources checked November 8, 2026. Rules, limits and forms change; the linked page is the authority.