A grant is money given to your business for a specific project or purpose. A grant is an award rather than a loan, so you usually don’t need to pay it back. Grants are offered by the government, the EU, private companies and charities. These bodies have different aims and it’s worth understanding their aim to assess your chances of getting the grant. For instance, the EU might be helping farmers invest in environmental initiatives or a charity may be trying to get more women to start tech companies.
- Often you need to match the funding that the grant provides, so if the grant provides 50% of the project cost, you’ll need to fund the other 50%
- To successful apply for a grant, you’ll need a solid business plan and a good pitch
- There’s a lot of competition for grants and the application process can be arduous, particularly when you try to apply for a lot
- Many grants are location or industry-specific, and each scheme has its own set of criteria for deciding how grants are awarded
How does a grant work?
First, you need to find the grants that your business is eligible for. A good place to start is the finance finder tool on the government’s website, which you can use to search for government-backed grants. There are also several online portals that list both public and privately-funded grants.
The application process will differ for each grant, but generally you’ll need to give the funding body lots of information about your business and the particular project that you’re trying to fund. If your application is successful, you may have to wait a while to receive the money.
Many schemes will only reimburse you once the project is complete, so you may have to take out a loan or find other finance to cover the costs initially. A short-term credit line can be the useful for this because you can repay as soon as you receive the grant to save interest.
Before you receive the grant, you’ll usually need to agree to certain terms and conditions, which will include agreements about how you’ll use the money. If you don’t stick to the terms of your grant, you may be asked to repay it. Organisations giving grants often require you to consent to having your story shared publicly if you are successful.
How much does a grant cost?
Grants usually don’t cost anything except for your time (which can be significant). They are given to you without expectation of repayment and you won’t need to hand over any equity in your business. However, you’re expected to abide by the terms of the grant and use the money for its intended purpose, and you may face penalties or be asked to repay the money if you breach the terms.
Also, bear in mind that grants will usually only provide a small amount of the total funding that you need for your business and can be hard to come by. They’re usually given for a particular project, and even then they will only pay for a portion of the project. You usually need to be able to match the funding provided by the grant, which means raising money through different means to pay for the remainder.
There are also repayable grants and soft loans, which are offered through similar channels but work slightly differently. If you’re awarded a repayable grant then you’ll need to pay it back when your business makes money in the future. Unlike a loan, the amount owed can be written off if you don’t make money. Soft loans usually need to be paid back, but the repayment conditions tend to be more lenient than a commercial loan (lower interest rates and longer repayment periods, for example). They’re a similar concept to government backed student loans.
A small energy company needs £20,000 to create a prototype for a new piece of renewable energy technology. They plan to take out a business loan to cover the cost, but they also apply for a grant to pay for half of the project. Their grant application is successful and once they’ve developed their prototype they claim the grant money, which pays back £10,000 of the loan.
Frequently Asked Questions
Who awards grants?
Business grants are awarded by the government, through a variety of departments, councils, agencies and local authorities. Grants are also given by the EU, and by some private companies and charities. The best way of finding a grant is to use online business grant search engines, including the government’s finance finder tool.
Is my business eligible for a grant?
There are lots of grants out there, so if you’re willing to spend time trawling websites then you’re likely to find a grant that your business is eligible for. The location of your business, the type of industry you work in and the project you’re trying to finance will all make a difference to which grants you can apply for. You might want to ask others in the same industry to see if they know of any grants.
How do I make a successful grant application?
Read the requirements and get to grips with the application questions and process, as each grant will work slightly differently. You need to be able to sell your business and your project convincingly, by writing engagingly and showing your passion for the work you’re doing. Also make sure you understand what the organisation giving the grant is trying to achieve. For example, if they’re looking to spur growth in a deprived area it’s probably worth focussing on job creation.
Data is always helpful to illustrate the successes you’ve had so far (customer numbers, growth and reach, for example), and you should also be able to clearly explain where your business is going in the future. Often, awarding bodies will want to know about the social impact that your work is having, or how it’s helping to advance the field you work in.
Alternatives to a Grant
A grant is great if you can get it, but the process is competitive. Even if you are successful, any grant you’re awarded will only fund a specific project or a small part of your business. You might want to use a small business loan for the rest. You’ll often need to use other finance to pay upfront because many grants work on an arrears basis – a short term option such as a business overdraft or small business credit facility is likely to be best for bridging the gap.