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’.

Finding cash for other elements

You may have to find cash to pay for the elements of your project which are not covered by the grant, where, for example, a grant to help develop a business website might have no element to assist in buying a computer on which to host it.

Again in practice many of the businesses providing services to the SME sector which are used to playing the grant game will be adept at managing the process of applying for a grant so as to obtain maximum advantage.

Pre-funding

Find out if you can obtain cash prior to expenditure. Many grants provide repayment to you of part of an expense or investment that you have to make and cannot be retrospective.

Remember that even once you’ve been awarded a grant in theory, you still actually have to be paid it. This payment might be at regular intervals throughout a project, or may be in arrears once you have submitted proof of the expenditure. You therefore will need to look at your project’s cashflows to ensure that you are able to finance the project until the grant cash actually comes through to you.

Other issues

• Arranging a public or private sector partner as applicable, since many grants are available only to such public/private partnerships.
• Finding out when the application has to be made. Some funds are only available for part of the year and others may have deadlines which have to be hit. Remember that most grant funding bodies will be bureaucratic institutions that are managed on the basis of paperwork, which will have to be in on time and in triplicate.
• Completing the application process, which you will generally find includes attempting to estimate how many jobs will be created, or staff helped to obtain NVQs or other qualifications, as a significant part of both the form and the selection criteria.
• Awaiting approval of your application and payment of the funds required which may take some time. A locally administered grant should take no more than a few weeks; however, an application for national funds may take months, while applications for European funding can take anything up to a year.

Remember that many grants are either run as competitions or may in practice be competitive, as the number of businesses are all applying for a limited pot of funding. You therefore cannot rely on automatically getting any grant and you need to consider whether your project is viable if the grant doesn’t come through.

Almost all grants will come with strict terms and conditions which will include a requirement to provide extensive information as to the impact of the grants which can, for example, require you to provide details of numbers of employees and qualifications gained as a result of the grants. The danger with grants is that if you breach the conditions they are usually repayable immediately, although at least no interest is charged.

This leads on to the other danger: in order to get a grant you may have to commit your business to meet specific criteria which may cause a subsequent problem. For example, an electronics business MBO had obtained a significant grant which specified the number of jobs this grant had to have secured. When the industry had a downturn and its competitors laid off staff to reduce costs, the company was unable to do so as this would immediately trigger repayment of the grant in full. As a result, the company staggered on without reducing its cost base until eventually it failed and all the jobs were lost.

WHAT DO GRANTS COVER?

Business Link’s Grants and Support Directory (see below) starts from an extensive checklist that asks you to identify the type of support you are looking for.

Taking a broader view, grants are made available by funding bodies in order to help them achieve their objectives and at present in the UK break down into a number of main areas (some of which obviously overlap).

• Training across many areas, most notably in IT skills or any training which would lead to a qualification such as an NVQ (see the Learning and Skills Council www.lsc.gov.uk).
• Research and development, together with the implementation of innovation and then taking products to market, where there is a wide variety of awards available, including for example the DTI’s SMART award scheme and support from NESTA.
• Economic regeneration, where for example, businesses based in assisted areas can be provided with assistance through the Selective Finance for Investment in England scheme, providing up to 50% of relevant capital expenditure (which has largely replaced Regional Selective Assistance grants, see www.dti.gov.uk/regionalinvestment) if this helps to stimulate local employment urban regeneration or regional development, while there may also be support for example for small rural businesses.
• Ecological improvements or extensive grants are becoming available from the Carbon Trust for energy improvement projects.
• Exports, where support is available for example to attend overseas trade fairs.
• Employment of young people, where for example under the New Deal (www.newdeal.gov.uk) there are support grants available for the employment and training of young people.
• New business start-ups, particularly amongst young unemployed people where for example, the Prince’s Trust (www.princes-trust.org.uk) provides support for those aged 18 to 30 with a business idea.

ASSISTANCE WITH OBTAINING GRANTS

There are a number of sites that seem to provide extensive guidance to what is available and how to apply for it, and which should therefore be your starting point for finding grants and obtaining assistance in accessing them.

• j4grants.co.uk (www.j4b.co.uk), a site run by a consultancy claiming to provide comprehensive information on ‘government grants for both business and voluntary groups which is updated daily’ as well as providing ‘a database of publicly funded organisations that provide help and advice’. The site provides a search facility to allow you to find what grants may be available for your type and size of business, in your location and for the purposes that you are seeking. They also offer a regular newsletter as well as an alert service to notify you of grants that become available that match your criteria. It also includes a link through to grant-guide.com which provides details of grants available in Europe.
• Business Link (www.businesslink.gov.uk) – follow the links to ‘Finance and Grants’ and the Grants and Support Directory which is designed to allow you to search for grants and other support although even the Business Link website says that applying for a grant can be a highly complex process, and you may therefore want to contact your local Business Link for help and advice with your application.
• You can also try www.grantsonline.org.uk.

Once you have information as to what may be available you can then apply:

• on your own;
• using your local Business Link, which will have advisers who should be able to assist you in the process and who will have a good knowledge of the grants that are locally available; or
• through a private sector agency. These agencies will charge for their services, but can obviously offer no guarantee that they will be able to obtain a specific grant for you, so you should check their terms of business very carefully.

Your eligibility for a grant will normally be determined by the following factors.

• Your location: some schemes operate across the whole of the UK, but since many grants are available from local councils or regional development organisations, these will by definition only be available to businesses in those localities.

The European Union provides funds to help develop the poorer regions in the EU. This is done by targeting European and government funding and assistance on what are known as assisted areas which come in three levels:

Any business proposal which involves investing in an area covered by these tiers and offering the prospect of substantial job creation may be eligible for substantial support.

• The status of your business, where some grants may only be available to limited companies.
• The length of time your business has been operating, where some grants are restricted to businesses in their first few years.
• The size of your business, where some grants may be only available to SMEs. The European Union’s definitions differ slightly from those in the Companies Act for small and medium-sized businesses while adding the concept of a micro business as follows:

• The sector you operate in, where funds may be targeted on the development of particular industries. By contrast the EU has imposed specific restrictions for grants supporting a number of sectors. The ability to obtain grant support in the areas of retail, agricultural and food processing, transport, and some heavy industries such as motor vehicles, shipbuilding, coal, and steel are therefore very limited.
• The purpose of the grant, where these are usually awarded for a specific project or purpose such as relocation, developing exports, or investing in plant and machinery. You will not get a general grant providing you with general working capital or cash with which you can do what you like.

The provider will therefore generally be looking for specific targets and results to be met which will contribute towards the funder achieving their own targets and objectives.

From this it follows that in order to have the best chance of obtaining funding you need to find out what the funder’s objectives are and ensure that your project is aligned with these. Generally it is a good idea to try to talk to the awarding body before putting your application in so that you can tailor your application to the criteria they are looking for, and ensure that your application is in an area that is relevant to that particular funder.

It also means that the funder will be looking:

• for your business to be committed to making the project a success, as otherwise the result will not be delivered; and
• for the project to be viable within a reasonable timescale.

Since you have to demonstrate the project’s viability and that it is likely to achieve the result that you and the grant provider will be looking for, your application for a grant really has to take the form of a well constructed business case and plan which includes the items below.

• A detailed description of the project.
• A detailed and fully costed project plan.
• As much detail as possible of the potential benefits of the project, including as much quantitative information as possible about targets that will be hit (such as new jobs generated or employees acquiring qualifications) which meet the objectives of the funder.
• The other normal contents of a business plan such as cashflow forecasts and projections, as well as management CVs.
• Fully completed application forms.

To stand the best chance of getting a grant you should ensure that:

• the facts in your business plan are fully supported with detailed and up-to-date information;
• you have clearly demonstrated the impact of the project on both the business and, where appropriate, the local community;
• you can demonstrate that you have the appropriate matched funds and/or a private/public sector partner as appropriate;
• you have demonstrated that the grant funds are required for the project’s success.