Understanding Business Grants

Mike Burt, MBA, CPA (Sep, 2017)

Who does not like the sound of receiving money with no strings attached?  Many business owners are drawn to the allure of obtaining money through the use of business grants, believing there will be no tax implications to their business.  However, everyone knows not much really comes without a cost in this world.  So, where do business owners turn to find these business grants, how do they apply, and does the money really come tax-free or without any costs?  The goal of this article is to shed some light on these questions.

Grants may be obtained through government agencies, foundations, or through private organizations such as corporations.  The easiest way to see what may be available is usually through an internet search.  Grants related to expanding or starting new businesses are the most difficult to find, unless the business is a non-profit organization, or is involved in new technology development.

The New York State Small Business Development Center (NYSSBDC) was created in 1984 and is administered by the State University of New York.  Information on their website can be obtained for Small Business Administration (SBA) programs, small business funding opportunities, NYS grants available, foundation grants, as well as links to other private and government grant resources.  The NYSSBDC also has information for minority and women entrepreneurs.  The website can be found at:  www.nyssbdc.org for more information.

The Empire State Development website can be accessed at:  esd.ny.gov.  Eligible applicants include non-profit businesses, for profit businesses, municipalities, technology parks, and incubators.  Capital grant funding is available for capital-based economic development projects in order to retain or create jobs; prevent, eliminate or reduce both underemployment and unemployment; as well as increase business activity. The Excelsior program should also be looked into as companies may possibly obtain grants in addition to New York tax credits.

The Downtown Committee of Syracuse also has a useful website for business owners and developers.  Please visit:  www.downtownsyracuse.com.  This website helps identify what resources, financing options, and incentives are available for businesses or projects.  A handful of the resource links include organizations such as:   CenterState CEO, Onondaga County Office of Economic Development, Onondaga County Industrial Development Agency, Empire State Development, Small Business Administration, and the Syracuse Tech Garden.     

One local organization that strives to help non-profit and tax-exempt organizations, among others, is the Central New York Community Foundation, Inc.  The website link can be accessed at:  www.cnycf.org/grants.  A positive change and impact in the community while honoring diversity and building inclusion is the goal of these grants.  Some of the grant programs offered are to help with capital funding related to equipment purchases or facility needs.  Some provide innovative project funding in the areas of arts, education, health, human services, or the environment.   There are also grants benefiting women, as well as performance management grants to name a few.           

The first step in obtaining a business grant is to do your research.  The proposal process, or application, for each grant is usually different from one another.  Visit the donor organization's website if they have one.  Call the organization to gain firsthand knowledge on what specifically needs to be done in order to be considered for a grant.  Obtaining a grant takes time and effort.  It makes no sense wasting time sending unnecessary information to an organization when it does nothing to aid you when they do their screening.  The business needs to decide whether the grant proposal should be done by a staff member in-house, or whether to contract out to individuals who do these grant proposal writings for a living.

One of the most common issues funding organizations encounter is feeling lost when reading grant proposals.  A well written proposal makes the job easier for the person reading it.  Writing in layman's terms so anyone can understand what is being discussed is an art.  The proposal needs to clearly spell out what the grant money will be used for, who will benefit from the use of the funds, and why the donor organization should take an interest.  Funding organizations want to know that the business they give the funds to will be an efficient and responsible steward of their money.  Most businesses make a mistake of concentrating most of their effort writing a well-written narrative to the grant proposal, when in fact the budget part of the proposal may be the most heavily scrutinized section.  The last thing you want to do is to submit a grant proposal that raises more questions than it answers.    

A common misnomer for many is that grant money received is tax-free money to the recipient.  The free aspect is that the money does not have to be repaid.  In most cases grant money received is in fact taxable business income.  There are limited circumstances where this is not the case, such as certain educational grants, or certain prizes and awards.  Make sure what type of grant has been received.

Grants may be treated differently for book purposes versus tax purposes.  For book purposes the grant money is usually picked up as income in the year received.  For tax purposes, make sure there is a clear understanding what is to happen.  Sometimes grant money is specifically earmarked for specific expenditures, such as equipment or machinery purchases, or building or plant improvements.  In these situations, the grant money received may have to reduce the cost of the fixed assets for tax purposes.  This is beneficial to the business normally because the hit on the depreciation expense will be spread out over a number of years (in contrats to picking up all the money at once as income in the year received like for book purposes).  One cost often not taken into consideration is the time necessary to complete any annual, or periodic, reporting requirements once the grant is received.

Grants provide vital cash infusions for businesses and help in boosting the local economy.  Competition for grants can be intense; many qualifying businesses often apply for the same grants.  Do not be surprised if your first grant proposal is not successful.  Do not despair.  Contact the organization to find out why your organization's proposal was not the one selected.  This information can be invaluable if applying for the same grant during the next open application window, or when applying for a different grant.  Funding organizations often use some subjectivity in deciding the winner.  Relationships developed with individuals at some of these organizations can become an invaluable resource.  Please feel free to contact your Dermody, Burke & Brown tax advisor to further discuss any questions you may have.


The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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