When the Going Gets Tough…the Funding Gets Fake
For small business owners starting up or growing a business, grant funding can be an excellent source of support to tackle big projects and improve your bottom line. Most business funding is offered by government ministries and related departments, but there are many private and non-profit funding sources operating independently. Not all of these sources are legitimate because they are grant scams. Many of them target start-ups and small business owners. More than one unsuspecting business has wasted precious resources and jeopardized confidential information in the pursuit of funds that, unfortunately, turned out to be nothing more than fake schemes. If you come across a grant program that sounds too good to be true, check for these six red flags:
1. Funding source is unclear
Dig into where the money comes from. A government ministry, charitable organization, or private investment group typically provides a set budget for the granting body to be distributed over the life of the program. The names of all these funding contributors should be clearly articulated in the documentation and available on its respective website. This garners good publicity and trust for the donors. If a program does not list any funding contributors, or states that the contributors are confidential, be cautious – it could be a sign that the money does not exist and it is a grant scam.
2. No info published on past recipients
Unless the program is brand new, it should have published some information about past successful funding recipients, such as case studies, success stories, or a list of approved companies. At minimum, this should include the full legal name of the company, year of funding it was offered, and the amount of funding awarded. If this information is not disclosed, or the information disclosed is vague and unverifiable, it could be a sign that no real funding has ever been issued.
3. Unclear program objectives
Every funding program has an underlying mission or a set of priorities that governs their investment strategy, as dictated by their funding contributors. Program guidelines should specify a type of project or company that they are looking to support, be it a certain industry/technology (i.e. medical research, clean energy technologies, social enterprises, culture and heritage organizations), or a disadvantaged target group (e.g. small businesses, new exporters, Aboriginal-owned businesses, rural communities). Programs that do not clearly defined their investment objectives will at best be highly competitive, as they attract a high volume of applications from a wide range of sources. At worst, it’s a sign that a wide net is being cast to catch as many unsuspecting hopefuls as possible.
4. Big payout, no strings
The granting body usually asks for certain measures of assurance that the business they are investing in is capable of following through on the proposed project. Very rarely will a program cover 100% of project costs – most often companies will need to contribute matching funds to support a portion of the budget and provide proof that those funds are available, through financial statements, bank statements, or investor commitment letters, etc. The larger the funding amount being sought, the more supporting documentation required.
Established businesses need to demonstrate that they have a history of financial stability and/or profitability. For a startup business with no financial history, it is unlikely to obtain non-repayable grant funding; most startup funding takes the form of loans, equity investments, or conditionally repayable contributions. Occasionally, when non-repayable funding is available for start-ups, they come in smaller contributions.
If a private fund is advertising non-repayable cash grants with no matching funds or repayment contributions, or if it is offering large non-repayable contributions for small or new businesses with relatively no financial history, it should not be trusted. As the saying goes: if it sounds too good to be true, it probably is.
5. No timelines or deadlines
Look for application timeline and when funding is released. All legitimate programs indicate when applications are due and how long the program is open for, whether it is for a couple of months or four years grant scams won’t include this information. Most programs also include a service standard and/or timeline of their application process. This could include a due date or general application processing time. If there is no mention of application dates, or when applicants are contacted about their applications, you should proceed with caution.
6. Application fees and other charges
Legitimate business grants do not charge an application fee. They also do not require the use of a specific consultant or firm to prepare your application. If you need help with your application writing, a program representative may be able to recommend someone to assist you, but they always offer at least two or three names of different consulting firms. If a program representative is trying to convince you to use a specific grant writing firm to prepare your business plan, steer clear. It’s likely that they receive a cut of the (often substantial) grant writing fee, and don’t distribute funds to applicants.
Grant scams may sound scary, but don’t let it discourage you from pursuing government funding. There are dozens of legitimate government programs that offer billions of real dollars to businesses annually. As long as you identify and avoid most of the above red flags, you can take comfort in pursuing these opportunities. If in doubt, give us a call! Our grants specialists can offer complimentary consultation about your funding options, eligibility, and the fund provider’s reputation.
Greta Bianchi is a government grants manager at RDP Associates.