Grants for Businesses

What Types of Funding are Available?

(i) Grants

A grant is where an organisation or authority gives a sum of money to your business to help you succeed in a particular project. Grants are given out by the government at a local and national level, as well as by other smaller bodies (such as The Princes Trust or The Arts Council).

The main feature of a grant is that the money is not repayable; you pay no interest on the amount given. However, it is not free money, you will need to carry out a significant amount of hard work to realistically have a chance of obtaining a grant. As the money is not repayable, the number of grants is limited, and competition for them can be quite intense in some areas.

Grants are designed to help you succeed in a particular project; and are not available for use as working capital or generally for uses that the business chooses afterwards. Grants cannot be obtained for work or purchases that have already been made, only for future projects.

Grants are not given for an entire project amount. Grants are mostly given using the term “Match funding”, meaning that the potential grant will be up to half of the project cost (normally between 15% and 50%). Your business will have to match the grant by providing the other half of the project costs. This helps to ensure grants are not given to risky projects that businesses are unwilling to invest in with their own money.

The grant process can take several months, so you should always add extra time to your planning to ensure that a decision is made before you start on the project.

Some grants are labelled as Enterprise Grants, these are similar to normal grants, but are usually aimed at growing businesses in Enterprise areas of the UK.

(ii) Small Firms Loan Guarantee

The most difficult part of obtaining finance for small businesses is having enough security. The small firms loan guarantee is run by the SBS (Small Business Service), and provides extra security by guaranteeing 75% of a loan for businesses that have a stable business model. This means that the government guarantees three quarters of your loan in the event that you cannot pay.

Loans are available for between 2 and 10 years, on amounts from £5,000 up to £250,000 (£100,000 if you have been trading for less than 2 years). You must have a turnover of less than £3million (£5million for manufacturing businesses) to be eligible.

You apply for a loan through an authorised lender. The decision still rests with them, however the improved security will help most loans be accepted. In return for the guarantee, you have to pay the SBS (Small Business Service) 2% of the outstanding loan every year.

This service is only available to businesses that are unable to get finance normally because of a lack of security. It costs more in repayments than a standard loan, but allows more businesses to have access to necessary finance.

It is not always necessary for an application to be for a specific project, meaning that the loan can normally be used for a variety of business purposes; although it helps your application if you can provide a good business and project plan to demonstrate that your business and finances are run sensibly.

For more information on the Small Firms Loan Guarantee, and to see a list of the authorized lenders, click here.

(iii) ‘Soft’ Loans

A ’soft’ loan is a loan provided by the government (or a number of other organisations) that does not require the same amount of security as a standard loan. They also commonly have very low interest rates, or no interest at all.

They are seen as a form of last resort loan, where all other options have been unsuccessful.

The criteria for soft loans vary between the individual organisations that offer them, although it is necessary in most cases to require the loan for up to 50% of a specific project’s costs.

Soft loans are aimed particularly at areas with high unemployment, or at businesses suffering difficulty, however, if you cannot get finance by any other means, then it is a valuable opportunity.

(iv) Awards

Business awards are won in the same way as other awards; they reward a business for achieving excellent standards in a particular field. They will provide excellent publicity (particularly the larger events) and will allow you to gain valuable contacts, as well as being rewarded with a cash prize.

There are many organisations offering awards, some are small local awards, while others are national events. Government agencies, local authorities, and business groups are among some of the organisations that run award schemes. There are awards for all different types of businesses, and for all areas of the country, so there is a good chance of finding an award you are eligible to enter for.

The vast majority of awards can only be won through work that has already taken place; there are few awards for future projects or plans. However, most awards are free to enter, and there is usually nothing to lose by entering.

Awards provide a good opportunity to gain cash and recognition for work your business has done, but remember that there will be many entrants to each award, so you should never rely or plan around award funding.

Some major awards:

The Growing Business Awards – www.growingbusinessawards.co.uk

The National Business Awards – www.thenationalbusinessawards.com

Do You Qualify For a Grant?

Despite the common opinion that grants are numerous and easy to get, the opposite is in fact the case. Grants are not overly common, and to get one requires preparation and hard work, as well as some luck.

You need to have (in the vast majority of cases) a detailed idea of a specific project you are financing, with specific targets or goals you hope to achieve. These ideas need to be presented as a crucial part of your grant application.

e.g. Stating that you wish to have a grant for research is not enough. You would need to state what kind of research you will be carrying out, as well as what aims you have and when you expect to achieve them.

You will need to invest as much into any project as you expect to receive in grants. Most grants and schemes work on ‘matching’ your investment, meaning you still need to pay half the costs. e.g. If you want to buy a piece of equipment for £20,000, you would be very unlikely to receive anymore than £10,000 in a grant.

Although grants are given out by a number of different organisations, most of them are looking for businesses that are expanding or creating jobs, particularly in poorer areas. The creation or potential creation of jobs will be an important factor in deciding whether you receive a grant or loan. If your project will cause the loss of a job then it is almost certain not to be accepted.

Almost every type of business is considered for grants and loan schemes, however they often have a bias towards businesses involved with manufacturing or services for manufacturing. This will vary depending on the area you are based and the organisation you apply with; but if you are not a manufacturing business, you will need a good argument to help you receive a grant or loan.

Most grants and loans have a limit on company size (normally based on employee numbers), if you go over this amount, you will usually not be eligible for a grant from that organisation or area. The most common maximum employee sizes used are 10, 25, 50, 100, and 250. This means a wider range of funding is available for smaller businesses, particularly those with 10 or less employees.

If you wish to apply for a grant through the EU, you should be aware that the process of acceptance could take up to a year. There is no limit to the amount you can apply for, but you will not be likely to receive over 50% of any project cost. Some activities are also limited to £61,000 (€100,000) of benefits every three years to help prevent unfair competition.

What Qualifies For a Grant?

Many types of business spending qualify for possible grant support. Equipment and machinery; IT and e-commerce spending; research and development; and expansion or relocation are among the areas covered by most grants. A maximum of £75,000 can be applied for to help with land or building costs.

Equipment bought with grant assistance can be paid for with a lease purchase or credit agreement, as well as outright cash purchase.

Spending that is not eligible for grants includes working capital; interest charges; road going vehicles; rent costs; and hired assets bought through an operating lease.

Assisted Areas

There are several assisted areas throughout the country, these are cities or regions with lower than average GDP (Gross Domestic Product). Extra support is available in these areas to help local businesses improve.

Assisted areas are rated in one of three tiers, with tier 1 having the highest extra support available, and tier 3 the least.

If you are based in an assisted area, then you are likely to have a better chance of obtaining a grant or loan, although there will probably also be more businesses competing for them.

Applying

Applying for a grant or soft loan is usually done through the specific organisation that is offering the funding. The process will vary slightly between the organisations, although most will require the same information.

Before you apply, you need to ensure that you meet the standard criteria for the grant or loan, applying when you are not eligible will cause a lot of wasted time and effort.

You will need to create a project proposal, detailing what you need the grant money for, the aims you have for the project, as well as how and when you hope to achieve them.

It helps to also have a good business plan available, this helps show the organisation that your business has planned effectively, has a good business model, and is worth providing funding for.

As well as a project proposal, you may also need to fill in a specific application form, with detailed questions. You may also be called for a personal interview (particularly for larger grants or loans) to present your case for funding.

Applications can take several months from start to finish, and EU applications can take up to a year to complete even if you are not successful. Generally, the smaller the grant or loan applied for, the quicker the response will be, and you should always allow time for the application process in your planning.

Applying for a loan under the Small Firms Loan Guarantee is different however; the application is made directly through the lender, who decides whether or not to accept it.

The loan guarantee only applies if you meet all the criteria, and are unable to get finance without it.

You do not need to have a project proposal to apply for a loan under the guarantee; however you should have an up to date business plan as a minimum, and any project plans you have will benefit your case for funding.

Finding Grants and Schemes

There are several places to search for grants and schemes across the UK.

The Small Business Service (SBS) and Business Link can give you advice, and help you search for appropriate grants and loans in your area. They can also help you prepare and apply for them.

There are many Business Link centres across the UK, and they are also accessible on the Internet, with a new online grant and scheme search at www.businesslink.org.

Another website which allows you to search for grants and loans is www.j4b.co.uk.

In Scotland, the Business Gateway can provide advice and give details of relevant grants for Scottish businesses or those looking to expand into Scotland. www.bgateway.com

In Wales, Business Eye can help with advice on grants for Welsh businesses or those looking to enter Wales. www.businesseye.org.uk

Remember

Grants are given to your business to help with a specific project. They will only cover up to 50% of the total project costs. Grants are offered mainly by the government, local authorities, business organisations and the EU.

The Small Firms Loan Guarantee offers security on 75% of a loan, meaning that a lender is much more likely to accept your finance application. You can only use the guarantee when you cannot obtain finance because of a lack of security, and you have to pay 2% of the remaining loan to the Small Business Service each year.

A soft loan is a loan from the government or local authority; they have little or no interest and need very little security to obtain. They are seen as a last resort, and will only be obtainable if you cannot find adequate finance through other means.

Awards can provide funding and publicity, however you can never be certain of winning an award, and they should be seen as additional to required finance.

Obtaining a grant or loan will involve writing a detailed project plan with the aim of achieving set goals.

Any grant (or soft loan) you receive will in most cases only make up a maximum 50% of the total project cost; you will have to fund the rest. Loans under the Small Firms Loan Guarantee do not have to be matched or for certain uses unless otherwise stated by the lender.

Grants vary depending on where you are in the UK, and are generally biased towards manufacturing and related services. Assisted areas will have a greater amount of funding for grants and loans, and creating new jobs will help make your application much more attractive.

Many different types of spending qualify for a possible grant, you should however, always be certain that you qualify for a grant before you apply.

Applications can take from several months to over a year to be completed, you should always include this time in any plans, and ensure you are never relying on grant or loan money.