Posted: Wed 6th Nov 2019
Grants provide funding to help small businesses grow. Unlike investment or loans, they don't need to be paid back or require giving away equity. This makes them an attractive option, but finding and applying for grants can be a complicated process.
We talked to finance experts that have helped hundreds of businesses get grants to demystify the process and help you get funding.
Grants are available to support small businesses from the idea stage to advanced research and development projects. It's worth considering applying for this funding if you need investment to launch a product or reach your next business milestone.
There are two main ways grants are allocated: match funding and lump sum. Match funding requires small businesses to invest a certain amount, which the awarding body then matches. This could come from a company's own funds or another partner. Lump sum grants are paid in full.
It's worth thinking about how the different funding options that are available to your business will work together, Enterprise Nation member and Darryl Bannon Consulting founder Darryl Bannon advised.
"People have to think long and hard about all their funding. You need a 360-degree approach. Maybe grants are better than getting investment. You could waste 50, 60 or 70 hours chasing investments and you could have got a grant. You get the money sooner and don't give away equity. It's about time management and you need to weigh the pros and cons," she said.
The timeline for grants varies by awarding body and the individual requirements of the grant that you're applying for. The list below outlines the steps you need to take to get the funding:
Work out what type of grants are relevant to your business
Find any partners that will be needed to develop the work
Wait for the right grant opportunity to become available
Apply for the grant (they tend to be open for around three months)
It can take three to six months to get an answer and a legally binding offer letter (it's worth looking at the feedback whether or not you win the grant)
Check the cashflow and tax implications of the offer and talk to any partners you have. If the grant was for research and development, the money you spend is likely to be eligible for Research and Development tax relief, so talk to your accountant or get financial advice
You may have a check in with the awarding body and show how you spent money compared with the targets
Organisations that offer grants want to support specific types of business activity. It could be as broad as work that creates employment or targeted to a certain type of technology or impacting a marginalised group of people.
Across the UK, enterprise hubs have been set up to support emerging business. It is free to work with these organisations and they can help sign-post you to the grants that are relevant for your business.
Scotland: Gateway Offices
Wales: Enterprise Zones
Northern Ireland: Local Enterprise Agencies
England: The Local Enterprise Network
Catapult's not-for-profit centres connect businesses with the UK's research and academic communities and are a great place to start your research.
There are a number of awarding bodies that offer grants for research and development:
Gov.uk lists Innovate UK's grants, which range from projects that reduce emissions from food production to commercialising quantum technology.
Horizon 2020 is a European Union research and innovation programme, with nearly €80 billion of funding available over seven years (2014 to 2020). The proposals page is a good place to start looking for opportunities.
There are two aspects to grant applications that you can get support with. First, you need to find grants relevant to your business and, if necessary, partners that will support your application. Then there's the process of completing the application itself.
Bryn Richards, head of R&D at ihorizon, encourages small business owners to carry out the search for relevant grants themselves.
"In the first few years, small businesses should be talking to the government bodies behind the grants. They should be talking to the kind of companies that they might want to cooperate with because often grants require that," he said.
Enterprise Nation adviser Darryl Bannon, director of Darryl Bannon Consulting, said it's more than possible to write your own grant applications and stressed the amount of government support that's available.
"They shouldn't be afraid to google them and do a meeting. People don't realise there's all this free support or think they're too small to go for it," she said.
Reading about the organisation and looking at grants awarded in the past will help you understand the themes that are likely to come up in the future. For example, Innovate UK awarded grants for robotics sensors and medical technology this year. In both cases, it's identifying areas it believes the UK can excel in.
"These organisations are targeted. It's better for a small business to monitor that and get an understanding of the common themes," Richards explained. "It's a moving target based on the government's or Innovate UK's philosophy. They have a concept of what they're focusing on, such as an area that the UK can be really competitive in."
Ihorizon's Richards walked us through three of the common pitfalls to watch out for when you're going through the grant process.
Think about the cashflow implications: Grants can be paid in arrears, meaning you have to send the money before being paid the grants. This can be quarterly, so you need to plan to have that money available.
European Union block exemption rules: Small businesses developing technology are often operating in the red because they've spent more than half of the capital that's been invested in it. They spent money on patents. That can be a problem. Sometimes there are accounting tricks to show that the company isn't bankrupt. In the UK we can say the directors don't want repayments.
Starting the work before getting the grant: The time it takes to get the grant can mean the work has been started and the cost predictions have changed. The best thing to do is accept the grant and apply for a change after the grant has started.
Grants often require partners that will help small businesses develop a new product or test the implementation. For example, a corporate partner can provide a test case or access to manufacturing equipment.
Approaching corporate partners with a commercial proposal for a product that doesn't exist yet is difficult. And, even if you're ready, the sales process is extensive. Working together on a grant-backed development process can offer an easier way in.
"Look for partners that will eventually be customers," Richards recommends. "The proposal you're going to them with is: 'we're not quite ready yet but would they like to get some free stuff?' It can be a teaser to get a big corporate to pay attention that will allow a technical leader to work with you without needing approval from finance."
When you've found suitable partners, write a summary of how you'll work together. Creating a single-page document with the different elements of the collaboration detailed in bullet points works well.
Answer questions in a succinct way. The person reading the application may be an expert but it's still important to spell out acronyms and explain things in an accessible way. Don't add additional information that isn't asked for, there may be space to share additional details, but the main questions need to be answered effectively.
A big part of an application is reviewing how the grant will be spent. This includes having a cashflow forecast, profit and loss report and a budget for the project. Bannon said you need to account for the cost of people that are needed for the project in these forecasts.
"If you want to invest in equipment, have you done your research into it? Spending has to be related to the business and fit for purpose. It's that thing of coming across as sensible to the awarding body," she added.
Richards recommended regularly reviewing what you've proposed to any partners that are involved as you go through the questions to make sure that it's covered in the subtext of your answers.
The process is onerous, but remember that the organisation that offers the grant needs to make sure they're giving money to a viable business. It can help to complete the application in bite-sized chunks. If you know you have two months, try booking an hour or two a week to work on it.
It's a competitive process too; don't be disparaged if you aren't successful. The work you've put into the application will make it easier to apply in the future and help you develop your wider business strategy.
"If you get turned down, don't get disheartened as it's quite competitive at the moment," said Bannon. "In the UK, there's not as much available as three-four years ago. But because we have this delay in Brexit, EU funding is available until January 2021."
Enterprise Nation content includes videos, downloadable guides and more. If you're an Enterprise Nation member you can find an expert to help you with grants, including booking a free taster session (click here to find out more about becoming a member).