What Are Grants?
Grants are a great resource for start-up and growing businesses because they provide money that usually does not need to be paid back. Each year, hundreds of millions of pounds in grants, as well as finance such as loans and equity investment are on offer to help small businesses employ and train staff, buy equipment and boost productivity. There is also money available to help SMEs enter new markets, carry out R&D and many other activities.
If you are starting out or seeking to develop your business, getting financial support is likely to be your number one objective. Business funding comes from a wide variety of sources, including regional programmes provided by the European Commission and public sector funding streamed through organisations such as Local Enterprise Partnerships (LEPs). Together with venture capital and angel investment networks, there are thousands of funds available to support new and growing small businesses.
Three main ways of obtaining finance come in the form of grants, loans and equity:
A grant is a sum of money paid to an individual or business for a specific purpose or project.
Most business grants are provided by central government and administered by regional and local authorities or business support agencies. The main groups that award business grants include:
The UK Government
The European Commission
Local Enterprise Partnerships in England, Scottish Enterprise / Business Gateway, the Welsh Assembly and Invest Northern Ireland
Local authorities or local councils and local development agencies
Chambers of Commerce
To receive grant funding usually you will have to complete an application form or write a detailed proposal explaining the objectives and benefits of your project. Applications will need to be carefully researched to ensure they meet all the relevant criteria and make a clear case for your business to be awarded funding.
A loan is a sum of money given to a business that must be repaid, with interest, at some point in the future.
A business has to apply for a loan through a lending organisation. Examples of these include commercial banks, credit unions or business development funds managed by financial companies.
Your business may seek a loan to finance any of a number of projects. It may be for working capital, purchasing equipment or premises, product development, or to support expansion into a new market. Interest rates on a loan depend on a variety of factors as do the terms of a business loan, such as the date by which it must be repaid.
A soft loan is a special type of loan where the terms of repayment are more generous than those offered under normal financial circumstances. So, for example, the loan may have a lower interest rate, and repayment could be spread out over a longer period, or there may be no interest to pay at all. Such loans are often available to start-up enterprises seeking to get their business idea off the ground, or established small business looking to realise their growth ambitions.
Equity finance is share capital invested in a business in return for a share of ownership.
This form of financing enables a business to receive the capital it needs without taking on additional debt. The way in which investment is realised varies. Investors can sometimes have an element of control over the business, can seek to monitor its growth, and can agree to a share of future profits. Their return is usually in the form of dividend payments and is dependent on the growth and success of the business.
Unlike lenders, who have rights to interest or to be repaid by an agreed date, external investors share the risks of the business, which is why equity finance is often referred to as risk capital. Outside investors will want to see an owner also investing their own money to show they are willing to share the risks.
The two major providers of equity finance are:
Business angels, who invest in businesses during their start-up or early development stages in return for equity.
Venture capitalists (or private equity firms), who invest in high-potential growth businesses in order to generate a return in the event of an IPO or trade sale of the company.
Equity finance is suitable for situations where cash is needed to fund growth and so cannot be spent on loan interest, or where the project is likely to be rejected for funding by debt providers.
In total there are thousands of funding opportunities out there to help UK small businesses – that’s millions of pounds worth of business financial support waiting to be claimed. However, the world of funding is dynamic with programmes launched, updated and retired on a daily basis, making it difficult to keep up-to-date with the latest business funding information. Not only does this take time and resources, but many programmes often have set eligibility criteria making it essential that you pick the right one for you.
A good first step is to register for free with j4bGrants. J4bGrants offers user-friendly funding search tools and the latest news about business finance, making finding the right support for your project simple.