There is confusion about government aid for small and minority-owned businesses. The confusion is caused by misleading advertisements about “free” business start-up funds, and by lack of understanding about the difference between grants, loans and contracts.
The federal government does not give away money to start businesses, to help businesses grow, to aid in big purchases, or simply because the business will be/is owned by a member of a minority group, a woman, a veteran, or is a small business. Instead, the federal government offers programs that give certain businesses special advantages when they bid on a contract or grant, or apply for a loan. Here’s a summary:
The government awards some contracts specifically to small businesses, small woman-owned businesses, small veteran-owned businesses, small businesses owned by members of certain minority groups, and to businesses headquartered in underutilized and economically-deprived geographic areas. These contracts are “set aside” so that only these businesses may bid on the work; this eliminates stiff competition from larger businesses. An example is a contract to program software, or construct a building, or provide maintenance.
Note that these businesses must often still participate in a competitive bid process. Occasionally a government buyer will award a contract “sole source,” meaning there is no competitive bidding process and the contract is awarded directly to one contractor. These sole source contracts usually are relatively low in value. All these programs have the overall goal of helping small businesses advance in the federal market.
Whether a business qualifies as “small” depends on the type of business; some categories measure size by annual gross revenues and some measure by number of employees. The “minority-owner” designation applies to some but not all US ethnic groups. There are various combinations of types of small businesses, and in some cases owners must apply to the US Small Business Administration (SBA) to receive a certification based on size plus minority group. There are other considerations, such as owner’s personal wealth and how long the business has been established.
Once a business receives its SBA certification, it is qualified to bid on contracts that are set aside for its category. The bidding competition would be limited to other companies that also have that SBA designation. Again, the benefit here is that large businesses are not eligible to bid on small- and minority-set aside contracts. Another boost for small and minority businesses is that large businesses are frequently required to give part of their contracts to small business subcontractors who have the SBA designations.
The SBA also provides small business loans to qualified businesses. Business owners must have acceptable credit histories and of course these loans must be repaid.
To read more about contract and loan programs and to identify SBA counselors and workshops around the country that can help you, go to http://www.sba.gov/ You do not need to pay a consultant to learn how to get your certification or to apply for that certification.
Grants are contractual funds awarded to non-profit organizations, educational institutions, medical facilities, and other organizations that provide services, such as clinics, research, housing, training, and counseling. Organizations write proposals to be awarded these grants; they perform the work in accordance with a binding agreement and they must report regularly on performance and costs.
Some federal agencies award Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT) grants to small, for-profit businesses or private citizens. These funds help ensure the development of important research and technology that benefit government and society, and the applicants have demonstrated they cannot get loans from traditional sources, such as banks. To read more about the SBIR and SBTT programs, go to http://www.sbir.gov/about/index.htm
As sovereign nations, American Indian tribes, Alaskan Native Corporations and Native Hawaiian Organizations have treaties an/or contracts with the federal government, some of which govern how they do business with the government and receive or provide services. Most maintain staff that understand and manage these relationships. Tribal members may also qualify as minority owners of small business (see the SBA program link above). Note: if an American citizen is not an enrolled member of a federally-recognized tribe or ANC, he/she does not qualify to participate in these programs. In some cases, enrollment in a state-recognized tribe may suffice.