Government Small Business Grants

Introduction - the following article outlines the main types of foundations, industry awards and government small business grants available, how to apply for free business grants and where to find small funding and business loan grants...

Pressure on Business Grants - as the pressure on public sector finances tightens in light of the recession, successfully obtaining aid money is becoming more and more difficult.  To make matters worse liquidity crisis means borrowing the money from banks it becoming more difficult and expensive to repay.  Most start-up small businesses need capital to invest in machinery, buildings, projects and product development, sales and marketing.  However, these businesses may be able to receive financial help from a range of grant based organisations including local district councils, central government, European Union, private trusts and Regional Development Agencies. Unlike business loans and other forms of borrowing, business grants are usually not refunded. Hence, the competition to obtain essentially free grants is fierce, among firms that provide small business services.  Most grants from organisations have strict conditions on what the money can or cant be used for.

Types of Business Grants - the follow provides a summary of the types of grants available to small businesses in the UK:-

• Matched Grants - these are schemes that dictate that the company must match a proportion of the grant, with its own money, to ensure shared commitment to the business objective. These types of business grants are most common to ensure that there is a shared level of risk and reward between the entrepreneur and the grant provider.  The size of the grant is usually linked to a specific budgeted and eligible project, and will not represent the entire investment required for the business to achieve its objectives.

• Small Funds Loan Guarantee Scheme - the small fund loan guarantee scheme (SFLG) has been set up by the Department for Business, Enterprise and Regulatory Reform (BERR) and the participating lenders.  It is operated by specialist banks and other institutions and provides finance for small businesses that have failed to secure a small business loan from high street banks. (SFLG) helps to overcome this by providing lenders with a government guarantee against default in certain circumstances.   Typically, these companies must present a plausible business plan and have tried and failed to obtain finance through the normal channels (simply because they do not have quite enough security).   Loan guarantee schemes are usually long-term investments between 2 and 10 years, with average loan values ranging from £10,000 up to £250,000. The main feature of this vehicle is that the government guarantees on average 80% of the loan. The borrower pays a premium of around 2% per annum, in exchange for the government backed loan guarantee. The borrower also pays a normal interest rate which is arranged between the lender and borrower.

• Skills Based Grants - some grants save operating expenditure by funding external consultants at a discounted rate (as opposed to a cash loan) or even provide external skills for free.  Sometimes the eligibility criteria will be skewed towards minorities or for women starting a small business. Others provide subsidised training courses to assist employers in improving the knowledge of their individual employees. These types of awards are very helpful where the internal management skills of a small business are not capable of delivering business results. The main Government subsidised skills and training based grant in England s provided by 'Train to Gain'.  This scheme provides subsidised training to help improve business efficiency and increase profits, by helping employees grow in motivation and confidence. In Scotland, a similar scheme is operated called 'Learndirect' and in Northern Ireland the Success through Skills Programme provides local skills training.

• Geographically Specific Grants - most grants are designed to alleviate specific geographical problems in certain industries. This is common in areas where traditional manufacturing based has declining and the local area has suffered as a result. Coal mining in South Wales and ship building in Scotland are good examples of assisted areas. Usually there is a need to retrain large numbers of unemployed workers and revitalise the area for the social good of the community. 

• Business Investment Grants - the government has launched a scheme called the Grant of a Business Investment (GBI) which is aimed at providing financial help to any eligible SME's, in England and Wales, who are seeking to invest in deprived areas via investment in buildings, equipment and protecting skilled jobs. In Scotland a similar scheme operates called the Grant for Regional Selective Assistance (RSA).  In Northern Ireland there is a similar scheme called the Enterprise Northern Ireland Loan Fund.  This scheme provides business support and advice, unsecured loans of up to £25,000, business advisor help to develop a business plan, gap financing to complete a funding 5 year funding requirement and attractive fixed interest rates.  There are also business grants available for small businesses that are based in areas designated by the Regional Development authorities in England that require economic regeneration, development and employment. To check whether or not your business resides in a postcode designated as an assisted area, the Department for Business, Enterprise and Regulatory Reform.

• Research and Development Grants - there are a range of business grants available for small companies seeking to invest in research into new products and processes.  The government is actively seeking to assist businesses to innovate, create and develop new technologies to improve Business efficiency and boost exports. To meet this challenge, the government provides a Research and Development tax credit, which aims to stimulate investment in business innovation, financial incubation, scientific and technological establishments and business creativity generally.  In 2005/06 over 6,000 R&D tax credits claims were made against over £6.7bn of business R&D expenditure.  There is also a EU based research and development business grant called 'Framework 6', which is offered to organisations working collaboratively with European universities.

How to Apply for a Grant - all grants have eligibility criteria attached to them to ensure that the money is invested wisely and meets the objectives of the scheme. Small-business applicants must ensure that their small business grant application meets those criteria in order to ensure the application is not rejected. As well as the completed official application forms, most applications will require additional information such as detailed explanation of the nature of the project, a project plan which has been properly budgeted and an analysis of the benefits to the local area.

Depending upon the size and nature of the application, it may be a requirement to be interviewed by a grant officer to  (rather than by telephone calls and post). Discussing the nature of the application and the grant eligibility criteria will establish whether any changes need to be made to the application. It is also sensible to produce a comprehensive business plan to demonstrate to the grant officer that your application deserves the funding. It is also important to establish any public sector timeframes for the award, because grants are usually based on regular timeframes, linked to budgets.

Most applications will take several months as the administrative process in public sector organisations is notoriously slower than that of the private sector. Any release of taxpayers monies are carefully scrutinised to ensure that the local community and country as a whole, is receiving value for money from the payment of the business grant.

Where to Find Business Grants - there are a myriad of Government websites and it can become a bit confusing working out where to seek help from.  A useful starting point is the local council or Business Link office which will give details of grants available in the local area.

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