In my years in academia I've seen several labs trying to start up. It's not always easy and, with the continuous cuts to funding, it gets even harder for newcomers that have to prove themselves against established labs. Just as it is when asking for scholarships, asking for grants and actually getting them depends on a series of points including published papers, graduated students, collaborations and more.
Recently, a very promising new professor arrived to my institute. He has (IMO) a great project, not only is it applied research, it is related to a high prevalence disease and what is more, he has quite an interesting and novel approach. He was refused every single grant he asked for. It has been less than a year since this PI arrived at the institute. He has one student for now, and I think I don't need to tell you that producing an article in a year, particularly if you are starting your lab, is not an easy thing to do. Yet, a lot of the comments he got back from government agencies were that he hadn't produced any data in his new institution. Keep in mind here that data is equivalent to accepted publications. Not having a grant for him means that he might not be able to get extra students, which creates a vicious circle: no hands in the lab, no results, no articles...in his case, he is working side by side with his student, but still. This could also obviously affect his evaluation for a permanent position in three years.
Another PI was rejected 3 times for funding, even though the lab responded to every single demand. On the 3rd time, the policies changed forcing them to re start the application from 0. And off course this not only applies to PIs. Getting a scholarship can be a whole marketing exercise where the product is you. Once again, if you are just starting as a Masters you will have to sell yourself as the best thing since sliced bread.
To do a proper funding request as a student or as a PI takes a LOT of time. It takes priority over experiment or sleep time, although most of the time the latter since you need those results to push your requests even more. You can tell that it is grant season because the PIs are almost locked in their offices, writing away and because when they do go out they have only one question: do you have results? It is certainly not the time for troubleshooting or bad news.
It would seem that the jumping through hoops to try to get funding to push research forward never ends. While it is completely understandable to ask for people to justify why funding should go to them and not to other group, often it gets to the point that it's the preparation of the document itself that is stopping research and not just the lack of funds.