The DTI defines a grant as a ‘sum of money given to an individual or business for a specific project or purpose’. While grants may not cover the total costs of the project or purpose, the advantages of this type of funding are that as long as you keep to any conditions attached to it you will not have to repay it as you would with a loan, nor will you have to give up any shares in your business, as you would with an equity investor. Grants are generally given to assist with business development. They will therefore be linked to a specific area of activity such as training, new product development, or investment in plant and equipment.
The Practical Issues
This may sound too good to be true and in practice obtaining grants can be a long, time consuming and frustrating process, with no guarantee of success, that involves the following.
Finding Out What Grants Are Available For Your Business
This can be difficult as there is a wide variety of grants available across the country (with over 4,500 grants and financial programmes available to UK organisations according to www.j4b.co.uk , see below). They are funded by a wide range of organisations including:
- local authorities
- Regional Development Agencies;
- central government;
- European Union bodies; as well as
- non-government organisations such as the Prince’s Trust; and
- quangos such as the National Endowment for Science Technology and the Arts (NESTA) or the Carbon Trust.
Each of these will have its own application procedures. The grants are given for a variety of purposes, as they are usually designed to assist in achieving some economic development or regeneration policy which then helps to determine the criteria you have to meet in order to apply. These can include:
- the size of your business – some may only be available for small or medium-sized businesses (SMEs);
- the industry you are in – some may be designed to help a specific industry, or a general grant may exclude businesses in some specific sectors; and
- your location, for example many European union grants are only available in specified geographical areas requiring economic regeneration;
- the use to which the funds are to be put.
Meeting The Criteria
Finding out whether you meet the criteria for the grant that you are applying for, as discussed below, may be complex.
Applying In Advance
Apply before you start the project or incur the expenditure. Most grants are not retrospective and you have to apply for your proposed project in advance. This can result in delays in getting
your project underway if you have to put it on hold while you go through the grant process.
In practice in the SME sector many suppliers of business services have become adept at taking advantage of whatever grants are available in their sector, and will offer to try to obtain these on your behalf in order to help pay for the costs of their services. So for example, a marketing or training consultancy may quote you a rate for a project as part of the tendering process, but do so on the basis that they will expect to be able to obtain grant funding to part pay for it.
Matching Funding
Very few grants will provide 100% of the cash required for a project, and you will therefore need to both arrange the matching funding to provide the balance, and be able to prove to the grant provider that this is in place. This matching funding can be cash introduced into the business by the owner or a new investor, come from the company’s own cash reserves, or be money that has been borrowed for the purpose.
For some smaller grants and support you may be allowed to count the cost of your time that is contributed towards the project as part of the matching funding. From what I have seen in the small business arena, this approach is wide open to abuse. For example, a firm providing advisory and support work which is part paid through government grants could inflate the total value of the project claimed for such that the grant applied for (which in theory is providing only say 50% of the costs) actually covers the majority of the true costs, so reducing the cash that the client has to pay as their share; with the balance of the project’s nominal cost then being made up by this ‘time contribution element’.