Not all Grants are Grants
You’ve gone through the (sometimes arduous) process of researching, identifying a grant, preparing and submitting your application, and congratulations! You’ve made it to the post-approval stage.
Applicants are eager to get to the post-approval stage – and for good reason! This is where you receive the funds that you’ve worked so hard to get. Something that not many businesses know, however, is how the funds are actually paid out. In our experience, most businesses expect to receive their funding upon approval prior to executing any activities. This is a common misconception that we’re here to address and explain how not all grants are grants.
How do grants pay out?
The approval stage is the most important to any applicant because it’s the stage in which funding is received. What may catch applicants by surprise, though, is that for the vast majority of grant programs, you don’t receive the funding up front.
So.. if you don’t receive the funding up front.. how do you get your free money?
Most grant programs operate with a claim structure. A claim is a document you submit to the funding program that outlines the grant-related expenses you’ve incurred over a certain period. If the expenses are within the scope of your grant approval, then you will receive a portion of the funds via cheque or direct deposit. This is called a ‘contribution agreement’, wherein both the applicant and the granting program contribute funds toward the same project.
Let’s have a look at two grant types that most commonly use the ‘contribution’ structure:
The most common type of hiring grant is a wage subsidy. This means that the program subsidizes a portion of your new hire’s wages. To receive your funds, you must submit regular claims to the program along with pay stubs and other requested documentation. The grantor will then reimburse you for what you are eligible for, based on the claim provided.
Market expansion grants
Market expansion grants tend to be larger in nature. As such, claims are an important part of the process. Most market expansion programs require claims to be submitted along with invoices and proof of payment documents. Given all the expenses are approved, you’ll then receive your grant funding.
Not all grants reimburse incrementally, however, it’s important to note that for the vast majority, you will be required to incur the expenses prior to receiving funding.
Differences between a grant and a contribution agreement
To better understand the difference between a grant and a contribution agreement, we’ve put together the following table:
|Funds are given all at once||Yes||No|
|Funds are given incrementally||No||Yes|
|The applicant incurs all expenses||Yes||Yes|
|Claims are required||Yes – to a lesser degree||Yes|
Why are some grants contribution agreements?
Why do most grants require claims? The simplest answer is to ensure that applicants follow through with their grant proposal. Here’s a couple of examples:
- Hiring grants: Hiring grants exist to help support small businesses with the hiring process. If claims were not required, there’s a risk that applicants will let the new hire go after receiving the grant funds. This is mitigated by requiring claims so employers are only reimbursed for what they have paid out in wages.
- Market expansion grants: As most market expansion programs are larger in scope (and project budget), claims serve to ensure the funds are spent on eligible expenses. These types of grants have a laundry list of expenses they cannot support, so claims are an effective way to verify this.
In short, it all comes down to trust. The claims process is your chance to prove that you can handle the post-approval stage and achieve what you set out to in your submission. Grant programs take a certain level of risk by approving first-time applicants, so it’s very important to follow the reporting requirements to a tee. Building your reputation with the program will make future applications much easier to manage both for you, and the granting program.
Are all grants contribution-based?
Lucky for you, the answer here is no! Sometimes, grants give you all the funding up front and you are free to put it toward your project activities. A good example of this is CanExport SMEs. CanExport will offer either a contribution agreement or a grant, depending on the applicant’s reputation with the program and financial ability.
Ultimately, it comes down to trust and the reputation you have built with the program. If you’ve gone through the post-approval process successfully before, you’re more likely to be approved for a grant. That’s why it is so important to keep in good standing with the program – it’ll pay off in the long run.
At Granted, we help our clients through the post-approval phase so they can focus on their project activities and stay in good standing with grant programs.
If you’d like to see how much grant funding your small business could be getting – head over to our Grant Calculator and find out! We also have Guidebooks on our Resources Page with step-by-step guides on the grant application process.