However, many small businesses find it very difficult to obtain finance, particularly if they are a startup 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 business 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 schemes available for small businesses, and some of the criteria you will need to secure a grant.
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.
Business start-up grants
This is a cash award, which is usually given out for activities such as training, employment, export development, recruitment or capital investment projects. With a direct grant most schemes usually require the company involved to put up around 50% of the cost.
Under this type of scheme cash funding is offered for a project with the intention that the sums are paid out of future revenues. However, if the project fails, the grant is written off.
A soft loan is a special type of grant where the terms and conditions of repayment are more generous (or softer) than they would be under normal financial circumstances. So, for example, the interest rates may be less, or there may be no interest to pay at all, and the repayment terms could also be for a longer period.
With equity finance a capital sum is injected into the business and the provider of the funds takes an equity share of the enterprise and (hopefully) when the value of the firm increases the stake can then be returned. However, unlike venture capitalists, the expectations and requirements of the providers of public funds are usually less demanding.
Free or subsidised consultancy
Start-ups can often find themselves in the situation where they are lacking a particular set of skills and there are some specially run schemes which offer to provide these either for free or at subsidised rates.
Access to resources
As with a lack of skills, it can be the case that small firms do not posses the physical resources or facilities they need in order to develop particular projects. In the same way there are a number of initiatives that can help overcome these concerns by providing access to publicly owned facilities.
Technology and Best Practice transfer
The transfer of technological advances and new best practice initiatives can often take a long time filtering down to smaller businesses. The government has set up schemes, which aim to overcome this through business support networks.
Shared cost contract
When it comes to research and development, the costs involved can prevent small firms from taking part. However, by sharing the costs with other businesses, and then sharing the expertise, this problem can be avoided.