Grants: the basics

A grant is a sum of money given to an individual or business for a specific project or purpose.

A grant usually covers only part of the total costs involved. However, as long as you keep to any conditions attached to the grant, you will not have to repay it or give up shares in your business.

Grants to help with business development are available from a variety of sources, such as the government, European Union, local authorities and some charitable organisations.

These grants may be linked to business activity or a specific industry sector. Some grants are linked to specific geographical areas, eg those in need of economic regeneration.

This guide introduces you to some of the grants available to businesses in the UK and outlines the kinds of projects and organisations to which they are available. It also provides hints on improving your chances of being awarded a grant.

However, it is important to remember that applying for a grant can be complex and time consuming. There is also a lot of competition and even if your business is eligible for a particular scheme or initiative, your application may not be successful.

Government grants and support

The government provides support to businesses both financially, in the form of grants, and through access to expert advice, information and services. See our guide on government support for businesses.

However, getting financial support can be tough. There will be strong competition and the eligibility criteria for grants are stringent. Criteria vary but are likely to include the location, size and industry sector of the business. See the page in this guide on grant eligibility.

Government grants are almost always awarded for a specific purpose or project and are usually for proposed projects only – not for those that have already started.

There are also strict terms and conditions that apply to all grants. If these aren’t followed, immediate repayment of the grant can be required. However, generally you do not have to repay grants or interest on them unless you break the conditions.

Matching grant funds

Most government grants require you to match the funds you are being awarded. In other words, the grant covers a proportion of the money needed, while you supply the rest. You must also demonstrate that your business can provide its share of the total costs.

The amount of matching funds varies from grant to grant. A research grant may require a business to find 40 per cent of the total cost with 60 per cent provided by the grant. However, a grant to refurbish a factory may require a considerably higher percentage of match funding from the business.

The matching funds may be found from the owners of the business, retained profits, a loan, or from a new investor.

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What kind of grants are available?

Currently, the main groups that award grants are:

• the government
• the European Union
• Scottish Enterprise, Highlands and Islands Enterprise, the Welsh Government and Invest Northern Ireland
• local authorities or local councils and local development agencies

For more information, Finance and support for your business on the GOV.uk website.

In Scotland, there are various grants and funding options available to businesses of all sizes. You can read about the RSA scheme on the Scottish Enterprise website You can also read about support and funding for the north and west of Scotland on the Highlands and Islands Enterprise website.

In Northern Ireland, there is the Enterprise NI Loan Fund (ENILF). You can find out about Business Support on the Enterprise Northern Ireland website.

You can download information on access to finance for entrepreneurs and businesses to enable start-up or growth from the BIS.

Innovation, research and development

There are numerous grants available to encourage investment in innovation, research and development. See our guides on innovation, research and development grants and how to find support for inventors.

Solutions for business

Solutions for Business is a set of publicly funded support products and services designed to help businesses in England. Eligible businesses can gain support in areas such as starting up, understanding finance, training and skills development, resource efficiency, exploiting ideas, accessing international opportunities and growing your business. See our guide on government support for businesses.

Government business support services are different in Scotland, Wales and Northern Ireland.

Access to knowledge

For guidance on the schemes available to support research and development in small businesses, see our guide on support networks and facilities for innovation and R&D.

Some businesses partner with a research or academic organisation in a project of mutual interest. See our guide on how to work with UK universities and colleges.

Skills and training

In Scotland, services are provided by Skills Development Scotland (SDS). Find out about services from SDS on the SDS website – Opens in a new window.

In Northern Ireland, these services are provided by the Department for Employment and Learning with its Success Through Skills programme. Find out about the Success through Skills programme on the Department for Employment and Learning website – Opens in a new window.

In Wales, these services are provided through the Welsh government. Find out about skills and training in Wales on the Welsh Government website – Opens in a new window.

Private sector grants

Some private companies can also offer financial support through grants to businesses. For more information, see our guides on venture capital and equity finance.

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Grant eligibility

There are a number of factors which could affect your eligibility for a grant.

Location of your business

Each of the countries of the UK has its own range of grants available. Some areas get extra grants, for example because of social deprivation or high unemployment.

Some grants are also given by local authorities to help local businesses.

Size of your business

You may only be eligible for some grants if your business is of a particular size, measured either by turnover or the number of employees.

Many grants are limited to small or medium-sized enterprises – typically those with fewer than 250 employees.

Your industry sector

Funding can be limited and subject to restrictions in certain sectors defined by the European Commission. Any applications that are made for grants will be closely inspected by the Commission.

The purpose of the grant

Grants are often awarded for a specific purpose such as purchasing machinery, improving offices, increasing employment or developing export markets.

Grant bodies prefer to see specific targets and results – often compatible with their own objectives.

As well as making an assessment of the benefits of your project, the awarding body will expect a high level of commitment from you and your business and for the project to be commercially viable.

Whether you are eligible for a grant will depend on the terms and conditions of the specific grant for which you apply.

Search our business support finder for grants, loans, expertise and advice for which your business may be eligible – Opens in a new window.

Support for specific groups

There are other organisations aimed directly at specific groups to help with business and funding support, for example:

• women – Prowess gives details of all women’s business support organisations by region. Find support organisations in your area on the Prowess website – Opens in a new window 
• mature people – The Prince’s Initiative for Mature Enterprise (PRIME) is an organisation aimed at assisting entrepreneurs over the age of 50. Find more information on the Prime Business Club website – Opens in a new window 
• people with disabilities – The Disabled Entrepreneurs Network has produced a booklet called ‘Setting up in Business: A Resource guide for disabled people and their advisers’. This includes information about tax, the Access to Work scheme, business planning, courses, grants, finance and working from home. To get a copy, send an email to info@disabled-entrepreneurs.net. Disability charity Leonard Cheshire and easyGroup chairman Sir Stelios Haji-Ioannou run an annual award for an exceptional disabled entrepreneur. Find out when the Disabled Entrepreneur Award opens to applications on the Leonard Cheshire Disability website – Opens in a new window.
• ethnic minorities – the Asian Business Network (ABDN) helps minority ethnic (ME) businesses to develop, by sharing best practice and improving opportunities. Find information about the ABDN and the services it can offer to ME businesses on the ABDN website – Opens in a new window.  The African Caribbean Business Network (ACBN) helps African and Caribbean owned businesses in the UK. Read about the services offered on the ACBN website – Opens in a new window.
•  young people – if you are aged between 18 and 30, the Prince’s Trust Business Programme may be able to help you with a low-interest loan. You can find out more about the Prince’s Trust Business Programme and apply online on the Prince’s Trust website – Opens in a new window. Shell LiveWIRE Grand Ideas Awards offer up to five £1,000 prizes a month to the most innovative and unusual ideas submitted by young entrepreneurs aged 16-30 with new businesses in their first 12 months of trading. Find out about criteria and how to apply for the Grand Idea Awards on the Shell LiveWIRE website – Opens in a new window.

You can also consider applying for a Professional and Career Development Loan to help improve your business skills before or after starting up a business. This is available to anyone and is a deferred repayment bank loan aimed at financing the training and qualifications that will help individuals further their career or business.

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How to apply for a government grant

Before you apply for a grant you should make sure that you meet the conditions of the scheme. Additionally, you should ensure that you:

• are ready to put up some of your own money
• need the money for a specific purpose
• don’t start the project before you get an agreement in principle of funding

Before applying for a grant, make sure the scheme is appropriate for your circumstances and location. You could also consider contacting a private business adviser for help and advice.

Making your proposal

When you have identified the right grant scheme for your needs, you will have to provide:

• a detailed project description
• an explanation of the potential benefits of the project
• a detailed work plan with full costings
• details of your own relevant experience and that of other key managers
• completed application forms where stipulated
• possibly a business plan

Some businesses get advice from their accountant, who can also help in drawing up an effective business plan. Remember to submit your application before the deadline where relevant – late applications are rarely considered.

Most reviewers will assess your proposal by using the following criteria:

• significance
• approach
• innovation
• their assessment of your expertise
• need for the grant

Be prepared to wait for anything from a few weeks to a year for a decision. Local applications are typically processed much more quickly than others.

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Why a grant application might be turned down

The most common reasons why applications are turned down include the following:

• the area of research/work is not relevant to the body awarding the grant
• the explanation of how research ideas will be translated into an achievable plan of action is unsatisfactory
• the proposal or application makes statements that are not backed up with supporting facts
• the research plan is unfocused and lacks clarity
• the impact of the work on the wider community/industry has not been communicated effectively
• the information provided in the application is not up to date
• the importance of the funds to the project’s success or failure has not been made clear
• the applicant is unable to prove they have matched funds
• the need for grant support is not proven

Ask for feedback if your application is declined. While you may not agree with the reasons given, it may provide ideas to help you structure future applications more effectively.

If you cannot get a grant, it may be worth looking at other forms of finance – see our guide on bank finance. You might also want to think about raising capital from outside investors by selling shares in your business. See our guide on equity finance.

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Identify finance options for your business

Whether you’re an established business or starting up, you may need to consider seeking finance. It’s important to understand the finance options available and identify which will be best for you.

This video on understanding business finance will help you understand the pros and cons of these alternatives.

Transcript

Darren, Business adviser: “Whether you’re an established business owner or a start-up at some point you may need to consider having to raise money whether it be to take on new premises, buy new equipment or help to develop a new product, for example. We’re now going to explore the different options available and the associated pros and cons.”

Darren: “So what are the possible options and what needs to be considered?”

Ganesh, Business adviser: “You need to consider why you need the financing and how much you will need and when you will need it by. There are a number of sources of financing and there are a number of pros and cons attached to all of those.”

Darren: “Would you need to have a business plan?”

Ganesh: “Yes a business plan is essential, it is an active document and it will show future investors what they will be investing into and it will give you ideas of how much funding you will need and when you will need it.”

Darren: “Are there any options to consider before turning to external sources?”

Ganesh: “Yes, you could always look at your own cash reserves and the investments that you have and possibly sale of assets.”

Darren: “There must be some significant advantages to this.”

Ganesh: “There are, the profits are retained in the business and you keep control and it shows commitment to an investor, should you need further financing.”

Darren: “So there are advantages, but what are the risks?”

Ganesh: “The risks are the cash is already tied up should the business hit a rough patch. And if the loan was taken out against an asset such as a house it is at risk if you don’t keep up the loan repayments.”

Darren: “We can now move on to explore the external options, so what is debt finance?”

Ganesh: “Debt finance are loans and overdrafts. The lender will expect the loan to be repaid and there will be conditions applied to the loan.”

Darren: “What about borrowing money from friends and family?”

Ganesh: “Friends and family are an option, but to avoid misunderstanding it is best to have a formal agreement.”

Darren: “What about borrowing from a more formal lender, such as a bank?”

Ganesh: “When you borrow from a bank there are fixed monthly payments with interest charges and the loan is over a fixed term, but you have to ensure that you don’t breach the terms of the loan.”

Darren: “Any disadvantages with this type of finance?”

Ganesh: “Yes you may well have been asked to put either business or personal assets as security against the loan which could be at risk.”

Darren: “What about equity finance, what can you tell me about that?”

Ganesh: “If you are willing to give up a share of the business it is an option, the investor will require a degree of control over the business and possibly dividend payments.”

Darren: “Keeping with the equity finance theme, what can you tell me about business angels?”

Ganesh: “Business angels usually invest in high growth businesses, they will require share equity and they typically invest between £10,000 and £750,000 in those businesses.”

Darren: “What about venture capitalists or VCs?”

Ganesh: “Venture capitalists normally look for businesses that require at least £2 million investment and that means that they are looking for proven track records and therefore are unlikely to consider start-ups.”

Darren: “What about setting up a joint venture or a partnership with another business?”

Ganesh: “That’s a very good way of pooling your resources to enable the business to grow. It’s very important that you look for a complementary business that adds value to both yours and to theirs. Also, look at the culture of the business and building the relationship and developing a trust with them.”

Darren: “Once you’ve found a partner, what next?”

Ganesh: “It’s very important to get a legal agreement in place that sets out the terms and conditions of the arrangement and that’s best done through a lawyer.”

Darren: “We’ve looked at debt and equity finance where the investor has an expectation of return upon an investment, what other options are there?”

Ganesh: “Grants could be an option, there are advantages and disadvantages to them. The advantage being that you do not have to repay the grant and they wouldn’t expect equity share in the business. The disadvantage being that the competition is fierce for these grants, the eligibility is very stringent and should you not adhere to the terms and conditions it may be that you have to pay the full grant back.”

Darren: “What can a business do to improve its chances of raising finance?”

Ganesh: “Key to this is good preparation and a solid business plan, after all you need to convince someone to invest in your business.”

Disclaimer: The material in this audio/video may include the views or recommendations of third parties, which do not necessarily reflect the views of Kraken, or indicate its commitment to a particular course of action. We assume no responsibility or liability arising in respect of any such third party material.

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Preparing to attract investment

Once you have identified a need for external funding and identified which types of finance are right for your business you will then need to prepare to approach potential investors or lenders.

This video will help you ensure that you are investment ready and prepared to present your business to potential investors.

Transcript

Roma – Business adviser: “Once you have identified a need for external finance and decided which type of finance you’re going to pursue you need to make sure you’re ready to approach potential investors. You need to convince them to invest in your business so you will need to be investment ready.”

“Whatever type of investment you are seeking, you’ll be expected to have a business plan. It should be one of the most useful tools for helping you to manage your business.”

“Your business plan should provide a roadmap for your business’ development, whether you are starting up or already established.”

“Sales, profit and loss, and cashflow forecasting will help you assess the potential returns and the commercial viability of your business idea.”

“If your business is already running you will need to provide previous years’ accounts.”

“It’s important that you identify any potential risks and how you might overcome them and ensure you have contingency plans in place.

“You could benefit by doing a SWOT analysis, that is, identify your business’ strengths, weaknesses, opportunities and threats. Once you recognise these, you can work out how to capitalise on your strengths, minimise weaknesses, make the most of opportunities and reduce the impact of threats.”

“Lenders and investors can be individuals, banks or other organisations. So what are lenders and investors looking for?”

“In the main, they’ll be looking for the same things from your business: a strong management team, good market knowledge, ambitious but credible financials, together with a clearly-defined exit route that will deliver high returns.”

“Whether banks or less formal lenders, such as family and friends, their primary concern will be whether or not you will meet your loan repayments. So they might be most interested in the creditworthiness of your business when they look at your business plan.”

“Grant providers will want to ensure your business is a worthwhile investment and that you meet their criteria and will be able to achieve your goals.”

“Investors – such as family and friends might want a share in the business and business angels or venture capitalists (also known as VCs) – will almost definitely require a share in the business and any dividends before agreeing to invest.

“Investors will be especially keen to know there will be an exit opportunity and that they will be able to recover their investment and take any profits. So they will want to know what your long-term plans are. And they may place greater emphasis on the business’ level of ambition when analysing your business plan.”

“Both business angels and VCs can bring valuable experience to your business. It is worth doing your homework to find out the investors area of interest, as they’re more likely to consider operating looking to start-up in a sector that they are familiar with”

“Top tips when approaching investors include:

• Have a well-rehearsed presentation and be prepared for questions
• Deliver a compelling pitch, be clear about your plans and goals
• Know your numbers, explain how you plan to spend the money
• Tell them about the expertise and experience within your business

“Pitching to investors can be a testing process and you need to be prepared for difficult questions.”

“Stay polite and respectful throughout. By all means defend your business, but don’t be aggressive.”

“Explain your business proposition and why you think you can make a success of it.”

“Questions that they’re likely to ask are:

• What type of products or services will your company provide?
• Who else is in the market and what distinguishes you from those businesses?
• Do you have any existing customers?

“Whichever type of finance you apply for, you must have the required documentation ready, ensure you fill in the necessary application forms and have the relevant agreements drawn up. If needed, a solicitor will be able to help draw up this agreement.”

“Make sure you have all your documents together: business plan, accounts and forecasts, SWOT analysis, and management CVs.”

“Remember – Practice makes perfect.”

Disclaimer: The material in this audio/video may include the views or recommendations of third parties, which do not necessarily reflect the views of Kraken, or indicate its commitment to a particular course of action. We assume no responsibility or liability arising in respect of any such third party material.

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Pitching to potential investors

Accessing finance for your business is likely to involve meeting potential investors or lenders to convince them to invest in your business.

Pitching for investment can be difficult. This video will tackle some of the most important issues and questions to help you effectively present your business.

Transcript

Chas – Business adviser: “If you’re looking to start up, or already own a business, at some point you might be looking for funding. This is likely to involve a meeting with lenders or investors.”

“Pitching for investment can be difficult and in this presentation we tackle some of the most important issues. Look presentable, behave professionally, first impressions count. Having a clear, well-rehearsed presentation is vital, the investors need to understand your pitch. You need to be investment ready.”

“You have to impress the investor, just having an idea for a business is not enough, make sure that you know your business thoroughly and understand your market. Prepare a business plan and be ready to explain your proposition and be prepared to answer questions. Be ambitious but realistic. Convince them why they should invest in your business. Not appearing knowledgeable, exaggerating, being evasive or even misinforming investors could ruin your chances of investment. Any investor will expect you to tell them about the expertise and the experience already within your business. They will want to see full commitment to the business by the management in terms of time and perhaps financial input.

“Lenders will want to know whether or not you can meet your loan repayments so they will be very interested in the credit-worthiness of your business. Grant providers will want to ensure your business is a worthwhile investment and that you meet their criteria and are able to achieve your goals. Investors such as business angels or venture capitalists who might want a share in your business will be more interested in the long-term goals. Make sure that you have an accurate idea of what your business is worth. If you’re not sure get an accountant to help you. Investors will be keen to know that there will be an exit opportunity and they will be able to recover their investment and take some profits. So they’ll want to know what your long-term plans are. If you struggle to explain yourself this may lead the investor to think that you underestimate their role, perhaps making them feel that their time, energy and funds are better used elsewhere.”

“You must be able to clearly describe the target market, the competition and your competitive edge. Explain how you’re going to spend the funds, investors are not going to part with cash if they’re not comfortable about how it’s going to be spent.”

“Know your margins, the selling price of the product and the costs; that shows a realistic grasp of potential returns and the commercial viability of the business. Let the investor know that you fully understand the terminology such as gross and net profit. Knowing your numbers is vital whether they’re actual or projected. Be prepared to speak knowledgeably and passionately about your business.”

“We will now see a role play, a fictional example of someone pitching a new product to some potential investors.”

Text: Role play of investment pitch

Woman: “Thanks for coming along today, we’ve read through your business plan, could you tell us a bit more about your proposal please?”

Barry: “Yes, I’m seeking investment for my new business venture which is a security device for mobile phones that enables the handset to be deactivated if it’s stolen. The company owns the copyright on the software, the software is at a latter stage of development and the business owners have invested £400,000 of their own money in the development. We’ve sourced a manufacturer and we’ve negotiated a supply contract. We believe this product is the future of mobile phone security.”

Man: “Thank you for that Barry, can you tell me what the unit price of the product is?”

Barry: “Yes, we’ve done some market testing and we found strong acceptance for a unit price of £1 which gives us a gross margin of 70 per cent.”

Woman: “And how did you arrive at this figure?”

Barry: “Well we have development costs of £250,000 to recover, we’ve also done some research and found that the selling price has to be between 5 and 10 per cent of the handset cost. Based on our bought-in price of 30p per unit that gives us our 70 per cent gross margin.”

Man: “So what’s your revenue forecast then?”

Barry: “We anticipate a market share of ten per cent in year one, twenty-five per cent in year two, and fifty per cent in year three. That translates into revenues of £2 million, £5 million and £10 million. Based on our projected operating costs we will lose £600,000 in year one, but make half a million pounds in year two and three million pounds in year three.”

Woman: “The market is forecast to remain flat over the next two years, how have you factored that in?”
 
Barry: “Well we’ve taken that into account and even at a selling price as low as 60 or 70 pence per unit we could still make the business profitable.”

Woman: “But how do you expect to get the volume if the market is flat?”

Barry: “Well we’ve done some research there too and in the UK there are currently 55 million handsets in use and on average these are replaced every 2.75 years so that equates to 20 million new handsets every year so it’s a very big market.”

Man: “And have you had any interest from any of the major players at all?”

Barry: “Yes actually we’ve had some good news there. We’ve just secured an order for 20,000 units from a major player and we’ve had an expression of interest from another big player.”

Chas: “We’ve just seen someone making a clear confident presentation covering his plans for the investment he’s requested.” 

“He’s researched the market and has even secured an order. He’s also given the investors forecast revenues and profit and loss numbers plus relevant information about his suppliers and the product. And finally he has shown that the management are fully committed to the business.”

Disclaimer: The material in this audio/video may include the views or recommendations of third parties, which do not necessarily reflect the views of Kraken, or indicate its commitment to a particular course of action. We assume no responsibility or liability arising in respect of any such third party material.

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