Formula or block grants
This is where most Federal grant dollars are spent. For-profit companies, colleges and universities, non-profit organizations and independent school districts are not eligible. Most formula grants are awarded to states, which in turn, dole out the money to other entities to serve the purpose of the grant.
The amount of money each state receives is based on an established formula that uses measures such as poverty rates or population growth. In order to receive formula or block grant funding, states must regularly submit a general plan describing the broad functions and population to be served by the state program to the federal agency that oversees the program. Like entitlement programs, block grants flow directly to state agencies that are responsible for operating the particular program. These agencies then sub-grant the funds to other entities (including businesses) through a competitive proposal process or turn the funds over to local government agencies or nonprofit, community-based organizations. These are often referred to as ‘pass through’ grants because the funds pass from the Federal government to the states, which then pass the funds along to other eligible entities—including small businesses. Formula grants differ from entitlement programs in that they do not guarantee to cover everyone who is eligible.
Discretionary or project grants
Discretionary or project grants are generally awarded through a competitive process. These grants fund a wide variety of Federal efforts such as education, healthcare, public safety, economic development and more. Eligible applicants for discretionary grants varies from program to program but may include state and local governments, community-based organizations, coalitions, public-private partnerships, schools and school districts, colleges and universities and small businesses. Because funds are awarded at the ‘discretion’ of the administering agency through a highly competitive process, application for discretionary grants does not guarantee an award, and the amounts received by grantees are not predetermined by a formula. For-profit companies are sometimes eligible to compete for these grants.
Competitively-awarded grants available to governmental bodies and entities, colleges or universities, tribal governments, independent school districts and non-profit organizations
Small businesses are not eligible to apply for these funds. Along with formula grants, these grants account for a large chunk of Federal grant spending. But unlike formula grants, eligible entities have to plan and develop competitively-judged proposals that are awarded funds based on the scores they receive. Nearly all of the Federal funding agencies offer grants to eligible recipients via a competitive process.
Even though for-profit businesses are not eligible to directly apply for these grants, they nonetheless represent a wealth of opportunity for small businesses to gain access to Federal grant dollars. Specifically, businesses can access these Federal funds by partnering with an eligible entity to apply for the grant.
In an upcoming post I will talk about the difference between grants and cooperative agreements (another way that government agencies providing funding to businesses)