When the Grant Well Dries Up: How SMBs in Texas and Michigan Can Bounce Back
It’s the kind of news no small business wants to wake up to: the grant you were counting on just got paused, defunded, or outright canceled. That’s exactly what’s happened to dozens of small and mid-sized businesses (SMBs) in Texas and Michigan this year, where political shifts and federal budget freezes have gutted DEI, clean energy, and workforce-related funding.
If you’ve been blindsided by a similar disruption—or you want to bulletproof your business from the next wave—there are real, actionable steps you can take to pivot, survive, and even thrive.
Let’s break it down.
What Happened in Texas and Michigan
In Texas, state officials pulled the plug on over $55 million in broadband and digital equity grants, and a $500,000 minority business program was blocked due to legal challenges. Governor Abbott’s January 2025 executive order banning state DEI policies only made matters worse, effectively freezing all related grant programs.
Meanwhile, Michigan took a hit from federal-level changes. About $21 billion in clean energy funding—including programs for grid upgrades and EV facilities—was frozen. A federal spending pause in January disrupted grant payouts for education, health, and workforce programs. Even nonprofits in the arts saw their NEA grants disappear.
Across both states, the ripple effect was the same: small businesses—particularly those focused on DEI, innovation, clean energy, and workforce training—lost major funding streams without warning.
Why This Should Be on Every SMB’s Radar
This isn’t just a Texas or Michigan problem. It’s a wake-up call. Grants tied to politically sensitive programs—think DEI, ESG, and green energy—are increasingly at risk. Discretionary grants, in particular, are vulnerable to budget reprioritizations because they’re awarded annually and don’t carry the same legal protections as contracts.
Translation: your revenue can vanish overnight, and there’s no breach of contract.
But there’s a silver lining: contracts, unlike grants, offer more stability and predictability. And with the right strategy, you can pivot from being a grant recipient to a contract-winning government vendor.
How to Bounce Back: Three Strategic Pivots
1. Shift from Grants to Contracts
Government contracts are legally binding agreements with much firmer ground. If you’re not already registered on SAM.gov, start there. Add all your relevant NAICS codes, get your UEI, and upload a capabilities statement. Use SAM, FedBizOpps, and state portals like Texas’ SmartBuy and Michigan’s SIGMA VSS to identify open solicitations.
This shift changes the game—you go from waiting for funding to actively selling services.
2. Expand Into Less Politically Sensitive Sectors
If your business has been focused on DEI or green tech, consider repositioning into public infrastructure, logistics, or healthcare IT. These sectors have more stable demand and less political turbulence.
Make sure your NAICS codes reflect these capabilities. Adding new NAICS codes not only opens up more contract opportunities—it also increases your chances to qualify for set-asides under SBA 8a certification, HUBZone, or women-owned small business certification programs.
3. Leverage Teaming and Subcontracting
Don’t go it alone. Teaming agreements and subcontracting relationships can get your foot in the door on large IDIQs and multi-year procurements. Use SBA’s SUB-Net and Dynamic Small Business Search (DSBS) to connect with prime contractors.
Also look to partner with city governments, school districts, universities, and nonprofits. These entities often have ongoing funding (even when federal dollars slow) and need capable vendors to deliver programs and services.
Operational Tips to Build Resilience
Beyond strategic pivots, you’ll want to reinforce your financial foundation:
Build flexible cost structures (think contractors instead of full-time staff).
Apply for SBA 7(a) or CDC/504 loans to cover cash flow gaps.
Explore Revolving Loan Funds (RLFs) through your regional Economic Development Administration office.
Engage with local angel investor groups or look into crowdfunding for specific projects.
Planning for “best-case/worst-case” funding scenarios will keep you nimble and ready for the next curveball.
Bottom Line
The lesson from Texas and Michigan is clear: grant money is not guaranteed, especially in politically volatile sectors. But government contracting offers a viable—and often more reliable—path forward. Whether you’re chasing disabled veteran government contracts, pursuing 8a contracts services, or eyeing new markets with the best NAICS codes for small business, it’s time to diversify your revenue and reduce grant dependency.
The earlier you shift your mindset from “grant recipient” to “government contractor,” the faster you regain control.
Want to know what NAICS codes are driving the most contract dollars in FY2025? Don’t miss our latest blog post on “Top NAICS Codes for Small Business Federal Contracts in FY2025”—a must-read for any business thinking about their next strategic move.
If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.
