Business Grants 101: What They Are & The Biggest Mistake to Avoid
A business grant is free money that does not need to be paid back…
Which means that business grants are…competitive.
And which also means you have to figure out a way to separate your grant application from the pack.
How can you do that?
By understanding the motivationof the grant organization you’re applying to. In other words, what are they trying to achieve?
We cover how you can do that below.
But first, let’s cover what exactly a busines grant is:
Business Grant Definition
A business grant is a financial award that has these characteristics:
The Government of Canada distinguishes between grants and contributions. Here’s the difference:
Another big difference:
Do Grants Have to Be Paid Back?
No. By definition, a grant is “free money” that does not have to be paid back.
Note: it’s important to understand that while grants don’t need to be paid back, some programs require recipients to provide regular reports on their progress.
Why Do Governments Give Away Free Money?
You increase your chances of success if you understand the “why” behind grant programs:
Governments in Canada (including the federal government and provincial/territorial governments) are the biggest providers of business grants in the country, so it’s important to understand their motivation.
Governments in Canada give grants to businesses for a few reasons:
1. Job Creation (and Retention)
Job creation is one of the primary goals of government grants, and grants are a direct way to create jobs: give money to entrepreneurs to start a business or grow an existing business, and those entrepreneurs will hire new employees.
Governments use grants to create jobs in specific industries and regions, and to increase employment among specific demographic groups (such as students).
2. Economic Growth
Governments can help grow an economy by helping businesses to:
The Biggest Funding Mistake Canadian Entrepreneurs Make
Here’s the biggest mistake that entrepreneurs make when looking for money for their business:
Some entrepreneurs only look for government grants to fund their business…
Other entrepreneurs only consider bank loans to fund their business…
But there are dozens of funding types for businesses, and literally thousands of funding programs available in Canada to start new businesses and expand existing businesses.
Here are just a few of the other types of business funding that you should be looking at for your business…
Other Types of Financial Support That Governments Give to Businesses
The main types of support (besides grants) are:
1. Wage subsidies
Wage subsidies are a type of funding that helps cover part of an employee’s wage for a specific amount of time. In Canada, wage subsidies are provided by the federal and provincial governments. One example of a popular wage subsidy is the Canada Summer Jobs program.
Loans are provided by the government to businesses to help them start, grow, or sustain their operations. Unlike grants, loans must be repaid (with interest). Three popular government loan agencies are the Business Development Bank of Canada (BDC), Export Development Canada (EDC), and Farm Finance Canada (FCC).
3. Loan guarantees
A loan guarantee means that the government agrees to repay a portion of the loan if the borrower defaults on it. This reduces the risk for lenders and makes it easier for businesses to obtain financing. Loans that are guaranteed by the government are typically provided by the big banks in Canada, as well as other financial institutions.
One of the most popular loan guarantee programs for businesses is the Canada Small Business Financing Program (CSBFP).
4. Tax credits
Tax credits are provided by the government to businesses to help them reduce their tax liabilities. Tax credits can be used to offset taxes owed or to receive a refund for taxes paid. Tax credits for businesses are offered by the federal and provincial governments for various purposes, such as research and development, hiring apprentices, and investing in certain industries or regions.
One longstanding and popular tax credit in Canada is the Scientific Research & Experimental Development program (usually referred to as SR&ED and pronounced “shred”).
5. Equity investments
Equity investments are a type of funding provided by the government to businesses in the form of ownership shares. In exchange for the investment, the government becomes a shareholder in the business and may receive a portion of the profits or dividends. Equity investments are often used to help businesses with high growth potential, such as start-ups and innovative companies.
One program that provides large equity investments is the Strategic Innovation Fund.
Keep in mind that these are just a few types of government funding programs for businesses. There are also private and non-profit sources. You can learn every type of funding in our complete guide to small business funding for Ontario businesses.