Government Grants for New Businesses

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There are government grants for new businesses available along with access to expert advice, information and services. Your first paragraph ...

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.

Finding out about grants can be a daunting task, even for experts. There are hundreds of different schemes being awarded by hundreds of different "awarding bodies" and schemes are constantly changing with some lapsing and new ones starting.The good news is that most small businesses are eligible at any one time to apply for a number of different schemes. The problem is that no one knocks on your door to invite your company to apply!

Government grants for new businesses 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 government grants for new businesses or interest on them unless you break the conditions.

What kinds of government grants for new businesses are available?

Currently, the main groups that award government grants for new businesses 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

Government grants for new businesses come in a number of forms. The most obvious is the (cash) direct grant but other forms of assistance are also numerous. The main types are:

Direct Grant

This is a cash item, which may be offered for activities such as, Training, Employment, Export Development, Recruitment or Capital Investment Projects.

It is rare to receive %100 government grants for new businesses funding. Most schemes require the recipient company to fund a proportion of the cost, with a figure of % being typical. Some schemes state maximum amounts in absolute terms, others have no limits.

Most government grants for new businesses 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

Repayable Grant

This is where cash funding is offered for a project with the intention that the sums are repaid out of future business revenues. The grant is not repayable in the event the project fails.

Soft Loans

This is a loan where the terms and conditions of repayment are more generous (or) softer than those, which would prevail if the loan were made available under normal commercial terms.

The interest rate may be less than the on-going commercial rate for a similar loan and/or the repayment term may be longer. Sometimes the loan may be interest free.

Equity Finance

Here a capital sum is injected into the business where the provider does not expect interest or repayment of the loan itself. Instead the provider takes an equity share (shares or stocks in the business) of the business, in the hope that the value of the shares will appreciate in the future, enabling the sale of the stake at a profit.

Unlike a venture capitalist, who would work in exactly the same way, the expectations and requirements of providers of public funds are less demanding in terms of eventual return required from the investment, and this is reflected in the terms and conditions and the criteria that the proposed grant funded project must meet.

Free or subsidised consultancy

Often is it the lack of a particular skill or skills that which a small business needs - this is particular so in the case of start-ups and new companies. Some schemes in recognition of this fact, offer to provide these skills directly, via the utilisation, at free or subsidised rates, of consultancy services.

This is achieved by paying, in whole or in part, the fees of accredited or approved consultants who possess the skills the organisation lacks.

Access to Resources

Sometimes small businesses don't possess the physical resources or facilities they need in order to develop particular projects. This can be the case particularly in manufacturing or research and development projects, where access to specialised testing equipment can be a drawback.

A number of schemes recognise this problem and provide access to publicly owned facilities (e.g. research facilities operated by the Ministry of Defence).

Technology Transfer

New technological advances and practices are sometimes developed by small businesses but more usually come from larger organisations in the commercial, academic or public sectors.

The transferring of technology to a wider sphere can be a difficult and costly process. It can also take a long time to achieve. A number of schemes tackle this problem with a variety of means to help the faster achievement of transfer.

Best Practice Transfer

There are a number of well-established quality and best practice initiatives. Some like Investors In People and ISO9000 apply throughout industry and commerce regardless of sector. Others such as the Lexcel scheme which applies to the legal profession, ISO/TS16949 2000 which applies to the motor industry are sector specific.

The transfer of best practice procedures from one organisation to another can often be achieved to the benefit of the recipient organisation and, for that reason, is encouraged by business support networks.

Shared Cost Contract

The cost of research and development programmes can be prohibitive for companies and small businesses acting alone. Sharing the cost of such programmes with others whereby all participants share in the cost and consequent resulting know how, can be a solution. Such arrangements are often brokered, and sometimes part financed by public bodies and institutions.

Subsidies

Some awarding bodies, whilst not always advancing cash grants will subsidise the cost of approved products or services used by firms.

Advice And Information

Researching the information required to develop products, services and markets can be time-consuming and costly for smaller businesses. A significant input by public bodies goes to the provision of advisory and information services and a number of schemes are of this type.

Packaged Assistance

The types of grant schemes identified above are not always delivered singly and to the exclusion of others. Often a grant scheme will consist of a number of separately identified types, each becoming one element of a package designed specifically for the recipient organisation.

Such schemes offer flexibility to meet the diverse needs an organisation has for help and assistance in respect of a particular project.

Competitive Awards Schemes

Applicable to companies to attain industry recognition at national or even international level for outstanding performance through participation in one of many competitive awards schemes that operate, usually on an annual basis. Often sponsored by government departments, lead-bodies, even banks.

These schemes offer the chance to earn major PR results from the wide publicity generated. Many schemes also offer significant cash prizes or benefits in kind at category or overall winner level.

Relocation Grants

Government grants for new businesses are not normally available for relocation within one of the home countries - the logic being that there is no overall advantage to the country in subsidising the move of a business from A to B.

However, there are incentives to attract companies to relocate from overseas to the UK or to set up operations here. There are also incentives to move from one of the home countries to another.

In addition, there are a number of differently defined "special Areas" through the UK. Within these areas a number of incentives are also available to those considering relocating to a special area or developing a product there

Grant eligibility

There are a number of factors which could affect your eligibility for a government grants for new businesses.

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 government grants for new businesses 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

Government grants for new businesses 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 government grants for new businesses will depend on the terms and conditions of the specific grant for which you apply.

Support for specific groups

There are other organisations aimed directly at specific groups to help find an alternitive to government grants for new businesses, for example:

• women - Prowess gives details of all women's business support organisations by region.

• mature people - The Prince's Initiative for Mature Enterprise (PRIME) is an organisation aimed at assisting entrepreneurs over the age of 50.

• 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.

• ethnic minorities - the Asian Business Network (ABDN) helps minority ethnic (ME) businesses to develop, by sharing best practice and improving opportunities. The African Caribbean Business Network (ACBN) helps African and Caribbean owned businesses in the UK.

• 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.

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.

Learn more about completing an application for government grants for new businesses