What is a small business grant?
A grant is money that’s given to your business by the government, a company or a philanthropist. Grants are essentially free money – you don’t have to pay them back. Their aim is to give small businesses a helping hand. They’re often targeted at job creation, projects that traditional lenders don’t support, and on increasing economic benefits for communities.
What are the advantages of business grants?
There are plenty of reasons why you might choose this type of small business funding in the UK. For example:
- Unlike loans, grants don’t need to be repaid
- Grants can open the door to new growth opportunities in your business
- There are lots of grants for small businesses in the UK to choose from –you’re sure to find something that fits your needs
- Receiving a grant can boost your visibility – especially if the grant provider publicises your business
- Grants can help with cash flow by providing funding for a specific project or purpose
What are the disadvantages of grants?
Grants can be targeted and have restrictions. You might only be able to spend the money on specific things or in certain places. For example:
- You might have to do some type of orientation or training before you can access the funds
- They might have a time limit, such as doing your research and development (R&D) within 12 months
- You may need to put up an equivalent amount or combine it with additional funding
- You may have to justify what you’ve done with the grant or share results if, for example, you used the money for R&D
What is the difference between a small business grant and a loan?
Unlike loans, grants don’t need to be paid back. With loans, you can usually request a specific amount – but grants tend to be a fixed sum or package. Grants also have conditions for how you spend them – a sustainability grant might require you to invest in green energy or materials.
Who gets them?
Competition for grants is high – everybody wants free financing. You’ll see a lot of them are for non-profits, but keep looking, there are plenty for businesses too.
Small business grants tend to be aimed at certain regions or sectors, specific types of businesses or causes, or particular community groups.
How much is a small business grant?
Grants can range from a few hundred pounds to hundreds of thousands. Most, however, are less than 10K. For that reason, they often supplement other types of small business funding.
How do you find them?
Grants can come from every level of government, philanthropists, or companies.
Here’s where to check:
- Government websites – central and local government. They should have a list of their grants and links to other sources like non-profits, foundations and corporations. For more information, visit the UK government page on grants and loans.
- Small business and industry associations. They may have their own grants or information about grants their members have had success with.
- Your accountant or bookkeeper. They may have other clients who’ve been successful getting grants.
Are there startup business grants?
There are grants for startups but they’re not going to fund your whole business. They might cover the costs of getting professional advice to create a business or financial plan, specific training, or investment in equipment. They’re aimed at getting your foot on the ladder – it’s still up to you to climb it.
Grants for research and development (R&D) are more plentiful, especially for innovative products and processes. These grants can help you plan, develop, test and refine your idea. They may take you through several stages but ultimately you’ll have to find the final funds to go to market with your concept. Check out Innovate UK for these types of grants.
Is a small business grant taxable?
Most grant programmes for UK small businesses are taxable, and need to be reported on your business or personal tax return.
Do business grants count as income?
Yes. You’ll need to declare grants on your tax returns.
How to apply for a small business grant in the UK
The money might be free but you’ll need to show why you deserve it.
Don’t rush it
Be prepared to put in some serious time on the application. So read up about what’s required from you before you commit. Check the time frame: how long will it take to apply and get an answer? Can you wait that long or is another source of funding a better idea?
Tailor your application
Do your homework as to why the grant was created and its purpose. Your application should show how your business fits the aims of the grant and how the grant will help your business – and make a wider difference if that is an objective.
Expect to provide information on yourself as well as your product or service, your market demographics, and how you plan to spend the grant. This may involve charts, graphs, and budgets. Know the strengths of your business so you can impress. Your business plan should have most of the information you need.
What small business grants are available in the UK?
Grants are typically created for a specific project or purpose – like helping businesses become greener, or supporting women founders. For that reason, you can find lots of different grants focused on many aspects of running a business.
Here are just a few:
- Resources and training: Sometimes it’s not access to funds, but access to knowledge that makes the biggest difference in your business. Resource-based grants offer things like training, mentorship, and workshops to help you on your journey. For example, Ad:venture is a Leeds-based programme of support which offers workshops, webinars, and networking alongside their growth grant.
- Job creation: These grant programmes are designed to help you grow your business so that you can support additional employees. Examples include The Growth Fund, for businesses based in Gateshead, South Tyneside and Sunderland; and Invest to Grow, a scheme open to SMEs, large enterprises, sole traders, and partnerships in the East Midlands.
- Green grants: Some grants are geared towards certain goals, like improving sustainability. For example, the Low Carbon Workspaces grant gives you up to £6,750 towards increasing energy efficiency.
- Direct grants: Where some grants provide vouchers or resources instead of funding, direct grants provide a cash sum. Depending on the grant, this cash might need to be used for a specific purpose or project.
- Tax relief: Technically, tax relief schemes aren’t grants. But they can give you access to extra funds. Take the Employment Allowance Scheme, which can provide up to £5000 towards your National Insurance bill.
Some of the grants we’ve mentioned are specific to certain industries and locations. Search the gov.uk grants directory to find more funding opportunities for small businesses. Filter the results by region, so you can see which grants are available in your area.
What’s a government small business loan?
Government-backed small business loans are more widely available than grants. The government doesn’t provide the money – it offers lenders a guarantee on the money they lend you. This makes it less risky for banks to lend you the funds you need.
Similar to a grant, government-backed small business loans are aimed at businesses like startups that might not be able to get funding from traditional lenders.
Unlike a grant, government small business loans do need to be repaid. But the interest rates are usually better than a traditional lender’s. And additional business support may be available in the form of mentoring and training.
Cash flow advice for small businesses
Grants can provide invaluable financial assistance for small businesses in the UK – as well as the resources to boost business resilience and growth.
For more information on how you can grow your business by making savings and improving your cash flow, check out our cash flow content hub.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
How to finance your business
Need finance for your business? Learn about the types of finance, approaching lenders and investors and more.
- What is business finance?
Your new business idea is ready to go. Now you need to find the right small business funding. But where do you start?
- How much business funding do you need?
Knowing how much money you need will help you choose the right type of finance. These tips will help you find a number.
- Debt versus equity finance
Most forms of funding fall into one of two camps. Let’s look at the main pros and cons of debt versus equity.
- Main types of finance
It takes money to make money. So what sort of finance options are there? Here are the types that fund most businesses.
- How to get a business loan
Getting a business loan is still one of the most common ways to finance a business. So let’s look at how to get one.
- Peer-to-peer lending
Peer-to-peer lending is an alternative method of getting a business loan. How does it work?
- Friends and family loans
Friends and family loans may be available when other types of finance aren’t, but they do require some precautions.
- Invoice financing
Ever thought your cash flow would be better if everyone just paid what they owed you? Well, you may not have to wait.
- How to find investors
How do you find investors for equity financing? Let’s look at what types there are and where to locate them.
- Angel investors versus venture capitalists
Angel investors and venture capitalists are alternative finance sources. What can they offer your business?
- How crowdfunding works
Crowdfunding can get you money to build a business, and the attention to build a customer base.
- Small business grants
Grants are a great funding option for some businesses. They can be a lot of work to get, but the reward is free money.
- Pitching for business funding
Seeking business funding is a major step but you needn’t be daunted. Here’s how to pitch your business.
- Tools and guides for your business
Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.
Download the guide to financing your business
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