Grants and Schemes

Funding is an essential part of all businesses. Whether your business is small and new, or large and established, adequate finance is required for the majority of projects, purchases, and expansions.

However, many small businesses find it very difficult to obtain finance, particularly if they are starting up or if they are a relatively new business. Lenders require security for loans, and many smaller businesses (particularly those looking to finance expansion) do not have adequate security to be accepted.

There are a number of grants and schemes available to help businesses that cannot find finance. The majority are locally based, with some national and EU schemes.
Here is a look at the main types of funding scheme available for small businesses, and some of the criteria you will need to meet to be able to apply.

What Types of Funding are Available?

(i) Grants

A grant is where an organisation or authority gives a sum of money to your business to help you succeed in a particular project. Grants are given out by the government at a local and national level, as well as by other smaller bodies (such as The Princes Trust or The Arts Council).

The main feature of a grant is that the money is not repayable; you pay no interest on the amount given. However, it is not free money, you will need to carry out a significant amount of hard work to realistically have a chance of obtaining a grant. As the money is not repayable, the number of grants is limited, and competition for them can be quite intense in some areas.

Grants are designed to help you succeed in a particular project; and are not available for use as working capital or generally for uses that the business chooses afterwards. Grants cannot be obtained for work or purchases that have already been made, only for future projects.

Grants are not given for an entire project amount. Grants are mostly given using the term “Match funding”, meaning that the potential grant will be up to half of the project cost (normally between 15% and 50%). Your business will have to match the grant by providing the other half of the project costs. This helps to ensure grants are not given to risky projects that businesses are unwilling to invest in with their own money.

The grant process can take several months, so you should always add extra time to your planning to ensure that a decision is made before you start on the project.

Some grants are labelled as Enterprise Grants, these are similar to normal grants, but are usually aimed at growing businesses in Enterprise areas of the UK.

(ii) Small Firms Loan Guarantee

The most difficult part of obtaining finance for small businesses is having enough security. The small firms loan guarantee is run by the SBS (Small Business Service), and provides extra security by guaranteeing 75% of a loan for businesses that have a stable business model. This means that the government guarantees three quarters of your loan in the event that you cannot pay.

Loans are available for between 2 and 10 years, on amounts from £5,000 up to £250,000 (£100,000 if you have been trading for less than 2 years). You must have a turnover of less than £3million (£5million for manufacturing businesses) to be eligible.

You apply for a loan through an authorised lender. The decision still rests with them, however the improved security will help most loans be accepted. In return for the guarantee, you have to pay the SBS (Small Business Service) 2% of the outstanding loan every year.

This service is only available to businesses that are unable to get finance normally because of a lack of security. It costs more in repayments than a standard loan, but allows more businesses to have access to necessary finance.

It is not always necessary for an application to be for a specific project, meaning that the loan can normally be used for a variety of business purposes; although it helps your application if you can provide a good business and project plan to demonstrate that your business and finances are run sensibly.