Business Grant Scams: 7 Red Flags to Watch For

Receiving notification that you’ve won a business grant — one you don’t remember applying for — could seem like a stroke of luck. It’s not. It’s a scam.

Limited access to capital can make a small-business owner especially vulnerable to grant scams, according to Carolina Martinez, CEO of Cameo, a California-based microbusiness network. Only about half of small-business financing applicants are approved for the full amount they requested, according to the 2023 Small Business Credit Survey from the Federal Reserve Banks. It also doesn’t help that many grant scams are quite convincing — with fake websites, working call centers and persuasive representatives.

However, by watching for some red flags that typically signal a business grant award isn’t legitimate, you can avoid putting your business and personal finances at risk.

1. You won a grant without applying for it

“If you did not apply for the grant, you did not win it. There’s no grant where there’s no application,” says Hal Shelton, a certified mentor for SCORE, a nonprofit organization that offers free business mentoring. “If you’re an individual or a small business, keep track of what you have applied for and when. And if it’s not on your list, it doesn’t exist,” Shelton says.

Martinez offers an additional tip: If you apply for a grant on an official website, it’s OK if the organization reaches out to you, “but if you hear from an agency you’ve never heard of or never submitted a grant application, then it is likely a scam,” she says.

2. You were contacted over social media

How you receive the notification of a grant award can also be a giveaway that it’s not legitimate. Scammers frequently use social media platforms. However, Shelton says, “The government does not use social media for contacting individuals or businesses.” And while nongovernment agencies may announce grant winners on social media, you’d likely be notified personally based on the phone number or email you provided on your grant application.

It’s also important to check the email address of any grant award notification. If it comes from a personal email account and not an organization, it’s likely a scam. With phone contact, keep in mind that scammers can manipulate the information that appears on caller ID to falsely show an official number or agency name.

3. You’re being asked to pay money to receive the grant award

It’s a common tactic in a grant scam to notify you that you’re eligible for a grant or have won one, then ask for payment in cash, check, gift card, cryptocurrency or wire transfer. With legitimate awards, Shelton says, “You get the money, but there’s no payment to receive the grant.”

Small-business grants provide money that doesn’t need to be repaid. This is what makes them so competitive.

4. There are no limitations on how the grant funds can be used

Grant funds usually can’t be used for just anything. As Shelton explains, the agencies that offer grants are typically mission-driven. “They’re giving out grants so other people can help them carry out their mission,” he says. Grantors typically explain how the funds can be used, whether it’s for marketing, equipment purchases, hiring new employees or something else.

This information, along with eligibility requirements and award deadlines, are typically provided when you apply for a grant.

5. You’re asked to provide personal and financial information

Be wary of callers who ask for personal information or company financial details and who are unable to provide details about the grant they claim to be calling about, says Martinez. These are indicators that it’s a scam.

At the time you apply for a grant, you’ll provide any required personal information along with details about your business or your business idea. A legitimate grantor would have that information available to them and not request it from you again.

6. The grant is given out by some type of U.S. grant agency

Business grant scams often create a name for a fake federal agency. The Federal Grants Administration, U.S. Grant Agency and Federal Bureau of Grant Awards are examples of nonexistent government agencies used in scams.

The best place to find a list of federal grants is at grants.gov, an official government website. Also, state, county and city websites often list available local business grants on their designated economic development center page.

7. The grant award seems too good to be true

Applying the old adage “If it seems to be too good to be true, it probably is” can be helpful in identifying when a grant offer is actually a ploy to get your personal information or money, says Shelton. Grant awards aren’t randomly given out, and there’s nothing easy about the process. Anyone who promises you something different is likely a scammer.

However, legitimate organizations do exist to help small-business owners and entrepreneurs, including the U.S. Small Business Administration’s Small Business Development Centers, SCORE and community development financial institutions (CDFIs).

“CDFIs and small-business development centers or other nonprofits that provide business coaching are key to helping entrepreneurs navigate the challenges of starting a business and also guide them through any open grant opportunities,” says Martinez.