Are you one of the UK’s 5 million SMEs? Are you just starting up or looking to expand? Either way, it’s likely that you’ll need funding for your business at some stage - whether it’s for product development, hiring employees, upgrading IT or marketing.
Business funding can be the difference between failing and becoming a force in the market. Yet when seeking finance options, it’s easy to feel bewildered, since the funding landscape is in constant flux, often influenced by shifts in the economy and politics. To make your life easier, we've put together this handy guide on small business grants, as well as some of the other funding solutions available to SMEs in the UK.
Bank loans vs business grants
Although there is plenty of capital to be had, small business owners seem to prefer using overdrafts than taking out bank loans. Research from Bibby Financial Services, originally reported by the Daily Mail, reveals that only a few SMEs are using banks:
- One in four (23%) rely on bank overdrafts.
- Bank loans are favoured by 13%.
- 14% dip into personal savings or secure loans from friends or family.
- Just 1 in every 100 is opting for new forms of finance such as peer-to-peer lending or crowdfunding.
SMEs veer away from bank loans for fear of high interest on repayments and concerns about being turned down. Luckily, the alternatives are plentiful. Small business grants are often the best way forward when business owners also want to avoid equity funding. Grants also provide an alternative to borrowing from loved ones – a potential minefield among personal relationships.
Key facts about small business grants
Small business grants are awarded by the EU, government, local authorities, charities, LEPs and other funders. They can certainly help businesses fulfil their potential, but there are important aspects to be aware of.
Firstly, many grants support specific economic needs including technological innovation, employment and climate change. Others are targeted at certain industries such as agriculture, design or manufacturing, and most funders give money to support individual projects. Cash can be handed out in one go, or released in tranches, at project milestones.
Most grants only cover some of project costs. Awarding bodies usually match-fund, so SMEs need to part-finance projects to be eligible. New Anglia LEP, for example, gives between £5,000 and £500,000 to businesses in Norfolk and Suffolk. SMEs can apply for a 20% contribution towards finding more funding from banks and investors. In other words, the grant creates important leverage.
Also, funders want SMEs to meet strict criteria, and expect applications to meet their objectives.
Despite the demands, these ‘free’ pots of money attract plenty of competition. To win there’s no escaping that you need to commit your time to research and planning.
The secrets of winning business grants
With plenty of business grants out there – around 6,000 in fact - you could spend hours (and hours) finding the one that best matches your needs. Even if a grant seems unsuitable at first glance, persevere and read the details. It may turn out that you need to approach your application differently, in order to meet the criteria. Never be dishonest or misrepresent your business in any way.
Let's say you’ve seen a grant that supports new jobs, but you need cash to develop software. Your application needs to focus on how the project will create new jobs for local people (and you should be prepared to provide evidence of this at a later stage).
Experienced grants applicants will tell you that each scheme is different. Where some are straightforward, others are long-winded and complicated. Either way, knowing how to secure grants is gold dust to a small business, giving you the edge over competitors.
Other advice includes:
- Staying on top of business news – national, local and industry – to catch new grant announcements. Apply as soon as you can, before word spreads.
- Social media is another excellent tool. Use hashtags such as #SMEfunding on Twitter to track news.
- Don't let closing dates put you off. If a grant is about to close, get in touch anyway. If they've had less interest in the fund than expected, they could have a lot of cash to hand out.
- Update your business plan – you'll need it for the application.
- Funders may expect you to report back on how you're investing the money. Before applying, plan how to track spending and measure outcomes.
- You could lose money from the grant, or even the whole amount, if you begin the project before your application has been accepted. Hold fire until you know the final outcome.
- The awarding body may want you to mention them in PR about the grant and the project it’s funding.
- If you need help, get it. Some schemes provide advisers or you might want to hire a consultant yourself.
- If you think there could be changes to a project after you receive the grant, mention this to the funder before applying. As a small business, you may need flexibility in the grant's conditions.
“There are a number of Government grants around for small firms, often sector-specific and mostly on a region-by-region basis. For example, areas of high demand such as construction in the North East, or firms looking for development capital in Wales, or follow-on innovation funding in Scotland.” Emma Jones, founder of Enterprise Nation
Quote originally published on the The Telegraph website.
Where to find small business grants
The journey to securing a business grant can be perplexing. To help, we’ve gathered together helpful information about the type of grants currently available.
EU and government grants
Business grants given out by the EU and central government are up for grabs in areas ranging from technology to conservation, and include:
- The main EU grant programme for SMEs is Horizon 2020, which has up to €2.5 million for high-growth and highly innovative small businesses.
- The government also has grants available for projects in England’s rural areas to encourage the creation of new jobs.
If you can’t secure money direct from the government, you could still access money at regional level.
- Local Enterprise Partnerships (LEPs) are public-private partnerships that support local SMEs to improve economic development. Stay informed by regularly checking in with your nearest one.
- The Regional Growth Fund, set up to create more long-term private sector employment, is currently under review following the 2015 election. However, some money is still available for time-limited projects and small projects. Get in touch with your local authority, LEP, banks or even local newspapers that may be distributing the money.
- Councils such as Caerphilly County Borough offer grants for local startups.
- Gaming companies in the West Midlands and elsewhere can claim 50% on development costs from Creative England's GamesLab Hardware, Software and Service Grant.
Young people are supported in many ways these days, so it’s worth investigating. Below are a couple of great starting points.
- The Prince's Trust gives grants to young entrepreneurs between 13 and 30, to help them launch businesses.
- The New Enterprise Allowance, for unemployed people over 18, helps them set up ventures. You need to be claiming Jobseeker's Allowance, Employment and Support Allowance or Income Support to be eligible.
Vouchers and non-cash support
Money isn’t the only option for small business support. Vouchers and free or discounted access to support, mentoring and advice can save on budget and include:
- The government’s Broadband Connection Voucher scheme, which covers up to £3,000 installation costs for SMEs.
- The Technology Innovation Fund (TIF) gives businesses subsidised access to expertise to help them drive forward their own projects.· The main EU grant programme for SMEs is Horizon 2020, which has up to €2.5 million for high-growth and highly innovative small businesses.
- Innovate UK (the former Technology Strategy Board) has programmes including a £10 million fund for R&D to accelerate the commercialization of civil aerospace innovation. In partnership with Innovate UK, the Ministry of Defence has pots of money up to £1 million for various programmes. On 25 November 2015, the government announced that Innovate UK is to become a lending scheme, so do look out for updates on this change.
- Entrepreneurship and provision of childcare in England are getting a boost with Childcare Business Grants. Startups and businesses trading for up to one year can apply for a maximum of £1,000.
Business grants for women
When it comes to funding for small businesses, women are more fearful than men of getting into debt, says Prowess Connect - the women in business campaign group. Women also set up businesses on less finance than men, and are not as confident when looking for startup funding.
These women are clearly ambitious, but their caution in accessing funding could hold back their businesses from developing into big success stories. Considering 70% of new self-employed people in 2014 were women, that’s a lot of potential the economy could be missing out on.
Grants could be the best fit for female business owners, since a considered approach is the key to producing winning applications. Women-only grants are scarce, however, the Welsh Government’s Participation Discretionary Fund is aimed at people from under-represented groups who want to become entrepreneurs (e.g. women, single parents, under 30s, over 50s, Welsh speakers, disabled people and ethnic minorities).
Otherwise, when searching, stick to the usual parameters including business size, location and turnover.
Search tools for business grants
Online tools help you sieve through the thousands of grants out there. The below websites let you filter searches by business phase, size, industry and location. Expert advice is also on offer.
- Business Finance Support Finder
- J4BGrants news
- Grant Finder
- For Scotland-based businesses - Business Gateway
Being part of accelerator programmes and business incubators can also open doors to small business grants in your field. In fact, business networks generally are hotbeds for news of exciting opportunities, so stay plugged in.
Fast-moving technology is giving rise to more alternative forms of business finance so there’s a lot more choice. If you’re still keen to avoid traditional bank loans, then Fleximize could be the answer. We provide revenue-based financing for small businesses. You take out a loan and just pay a percentage of your takings until your loan is repaid, allowing your business to grow organically.
Start growing your business today – call us on 020 7100 0110.