Pot luck or pot of gold? How to get a business grant

There are lots of business grant opportunities out there but is it worth all the red tape and hassle if you still end up with diddly squat? BusinessZone.co.uk features editor Louise Druce investigates the application process.

Small firms put off by the prospect of applying for grants could be missing out on a golden opportunity to accelerate their business. However, there is no such thing as free cash and certainly not free cash you can do whatever you like with.

Many companies finding themselves cash-strapped make the mistake of exhausting every avenue for funding, such as bank loans and overdrafts, then turn to business grants as their saviour. It's rarely the case.

What may also come as a shock to some is that it's extremely rare for the grant to cover 100% of the costs. Firms should be prepared to typically stump up anything from 15-60% of the total finance needed for the project.

"Any business that is dependant on grants is going to fail and they're going to fail to get grants as well," says John Devonald, business development manager at grant advisory specialists PNO Consultants. "Grants are very much to boost performance in a way that is predictable that additional help will be needed."

George Derbyshire, chief executive of the National Federation of Enterprise Agencies, agrees. "A grant should be almost a bonus or something extra, not something that is crucial to the viability of the business," he adds. "It may give you the capability of accelerating your plans, grow faster or help you go more that you originally planned, which is great. But if your business plan is such that you need a grant to make it grow then it raises questions about the sustainability of the business and could be in danger of backfiring."

Set your targets

According to PNO Consultants, although 97% of businesses are aware of grant funding, only 4% have ever applied and just 1% are successful. But firms shouldn't be put off if they have a strong business case. "Companies need to be proactive and not be scared," says Devonald.

It boils down to identifying where a grant could help business. For example, is it for innovation such as research and development or for capital investment to expand the workforce? This needs to be built into the business plan but you also need to be realistic about what can be achieved and have a plan B in case you are unsuccessful in your grant application.

Next, you need to look at what grants are available and be honest about eligibility. Whether national or local, most grants will aim to support specific activities, such as backing start-ups in deprived areas, green initiatives, training, product development etc. Services such as BusinessZone.co.uk's Grant Watch and j4bGrants are good sources for finding out what grants are available. You can also find out more information from your local Business Link, chambers of commerce, the Department for Business, Innovation and Skills, regional development agencies and other local bodies.

The main points you need to know are the deadlines for application, the length of the process and what it involves, when the money will be awarded and on what basis (annual payments?), and, if possible, what projects have been successful in the past. Most importantly, Devonald emphasises, don't leave it until the last minute.

Apply yourself

Once you have identified the grant you wish to apply for, the proposal is the most crucial part. "A lot of people do not do themselves justice in describing their business and, fundamentally, do not put themselves in the shoes of the people looking at the application and making the decision," says Derbyshire. "You must consider what the eligibility rules are and meet them or the application will simply be discarded. On the more subjective areas of the form, make sure you're giving accurate and complete answers."

The main points should include a detailed description of the activities being carried out, the potential benefits, full costing, a detailed work plan with deadlines, and relevant experience and expertise that is likely to make the project a success.

You may have to wait some time before you know if you're successful. Depending on the body awarding the grant, it can take anything from six weeks to six months to obtain a grant. In a few cases, it could take as much as a year. Local grants tend to be processed fairly quickly.

If you are successful, payments are usually made in instalments and you will have to prove where the money is being spent. You may also have to wait to be reimbursed so plan your cash flow well in advance.

The obligatory hoops

For those who hate paperwork, unfortunately it comes with the territory. "There are always eligibility criteria, and processes and records need to be kept and demonstrated. No company ever gets a blanket amount to use as they see fit," says Devonald. "It will always be assigned to a project with predictable costs and will be audited to see whether the project was carried out."

For instance, if a company says it is going to employ 300 people and spend £250,000 on the machinery and at the end of the year it has employed 275 people and spent £200,000 on machinery, it is likely to keep the grant. If they have only employed two people and bought hardly any equipment, it would be a totally different story.

However, Devonald adds that awarding bodies are not impervious to understanding some programmes might have changed over the course of time. For example, R&D can be uncertain by its very nature, so if a firm applies for such an innovation grant and the project has to be halted or changed because of technical problems, the grant body will assess what is needed to finish the programme and potentially allow the grant or perhaps reduce its size.

Overall, he believes the most vital thing when it comes to grants is that companies are honest and pre-plan everything to strengthen the business case. "If I could change one thing in half our clients it would be to embed external funding in the mind from the outset," Devonald adds. "Try to get an early assessment and don't leave it too late. Make it part of the strategy."