By: Micki Vandeloo, President, Lakeview Consulting
Everyone wants federal grant money, primarily due to the money awarded (in the hundreds of thousands to millions per award!). A Google search proves that there is much publicity for these huge awards, which leads manufacturers to believe that so much money is out there. This article discusses the sources of much of this funding, what strings are attached and why you should or shouldn’t seek federal grants for funding your manufacturing projects, despite the money at stake.
Where Do Federal Manufacturing Grants Come From?
Federal grants are offered by several federal agencies. The ones who most commonly release grants for for-profit entities and small businesses, including manufacturers, are the Department of Energy (DOE), United States Department of Agriculture (USDA), Department of Health and Human Services (HHS), Department of the Interior (DOI), Department of Commerce (DOC) and Department of Transportation (DOT). There are also the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) funding programs, through which small businesses can access funds through 12 federal agencies, with the largest share of funding from the National Science Foundation (NSF) and Health and Human Services (HHS).
Most federal funding is awarded to small research companies and startups for groundbreaking research and development efforts and high impact technology development through the SBIR/STTR programs. This funding, like most federal funding, will not fund capital investments at manufacturers or expansion or establishment of manufacturing facilities. The exception is when an expanding manufacturer participates in a supply chain that is deemed essential to the American economy (battery, semiconductor and electric vehicle manufacturing were targets of recent federal funding programs) or is undertaking a significant, large scale investment that will conserve energy or capture/utilize carbon. These exceptions are what manufacturers’ eyes turn to when gauging the federal grant landscape, as awards are well publicized and significant.
However, a very small percentage of American manufacturing will qualify for these grants, and, even if a project is a good fit, the undertaking of writing a federal application (which can take hundreds of hours between the applicant and a consultant), the reporting required and the auditing that ensues is usually far too daunting.
What Strings are Attached to Federal Manufacturing Grants?
There are three primary barriers for manufacturers applying for federal grants: lack of “fit” with funders’ priorities; reporting requirements; and accounting to meet federal audit standards.
Lack of “Fit”
This is a common scenario for me and many other grant writers: A potential client calls or emails. They explain they saw a federal grant opportunity, and their project is the “perfect fit” for what they perceive the funder is looking for. I review the grant opportunity and ask some pointed questions:
- Are you eligible to apply for the funding?
- Do you have an established, proven program that fits with the funder’s priorities?
- Do you have documentation to show that your project is one that the funder would want to award millions of dollars to?
If the answer to any of these questions are “no” or “no, but…”, their project is not a good fit, and I have to gently tell them this. It is my responsibility as a business owner and an experienced grant writer to advise current and potential clients against applying for a grant and trying to create a project to get that money solely based on the amount of money awarded (there are some in our profession who call this a “money grab”). Unfortunately, no matter how much we try to couch lack of experience or lack of eligibility in a grant application, the funder will sniff it out and reject the application out of hand. That means the client has wasted their money and time on a doomed application, and our team has wasted much time and energy trying to convince a funder in vain.
The reporting required for federal grants is extensive. When I wrote a grant application for a former employer for a state program that was funded with federal funds, I was thrown into the myriad of reports that federal funding required. I spent over 50% of my time collecting the data for these reports and filling them out.
In addition to the complexity of the reporting, federal funding requires more frequent reporting than state grants. In many cases, detailed progress reports and proof of expenditures must be submitted quarterly during the period of performance (which can be from six months to three years or more). This combined with the complexity of reporting means, if you are awarded a federal grant, you will likely need a dedicated person to manage the reporting for the grant.
If you hate IRS audits (and I personally don’t know anyone who doesn’t), you will not like the potential that federal grants provide to be audited by the funder. The more money you receive from the government, the more likely you will be to be audited on your expenditure of those funds. For this reason, federal funding that flows into your business should be kept in separate accounts where expenditures related to the grant are paid out of. This can drive your accounting people crazy and again requires devoted effort to ensure compliance.
Should Federal Manufacturing Grants Fund Your Large Projects?
The answer, for most manufacturers I talk to is no or not yet. If you are a manufacturer who has never pursued a grant before, it is my duty to advise that you don’t start with a federal grant. That being said, once a company gets more acclimated with the grant process and has strong project designs and strategic plans to support those projects in place, as well as the dedicated staff or consultants in place to manage the grant if they get it, there may be a point in the future where their projects may qualify for a federal funding opportunity. In this case, we are more than happy to support their efforts. However, I always advise my clients that, even if your project checks all the required boxes for a Federal Funding Opportunity (FFO), federal grants are VERY competitive. Depending on the number of awards and the level of “project fit”, your chances of getting a federal grant on the first try are anywhere from 5% to 40%, in my experience.
In my next article, I will talk about best practices for accessing both federal and state grants, which will help you be prepared if that big funding opportunity comes along.