Finding government grants for start ups can be like tracking down the golden fleece. But government finance for small businesses is available if you know where to look.
The government agencies involved make no apology for the difficult application processes involved in getting grant funding. This is partly put in place to test the need that the applicant has for funding. Grant aid in the UK does not come strictly under the control of the Government. In fact, it is regulated through EU ‘state aid’ legislation, which only allows the government to support certain types of business or activity.
One common misconception about grant funding is that there is a huge range of funding provided by the EU. In fact, the EU’s grant activities limit themselves to public-sector funding.
A firm’s location will play a major role. Companies located within an assisted area have a wider selection of grant funding schemes available to them and, in some cases, the funding available under schemes is higher in the assisted areas.
The assisted areas of the UK are based on three “tiers” relating to the maximum funding contribution that can be provided under different schemes.
What activities can gain grant support?
The provision of funding for R&D is increasing. An important distinction is between research into new products and processes (grant support is available) and continued development of an existing product or process (grant support is less likely).
Support for companies is now widely available through the R&D tax credit, which can be considered as state aid by the EU. This is an important distinction because care must be taken by companies seeking to gain grant funding in addition to a tax credit.
There is a National Grant for R&D (SMART in Scotland and Wales) aimed principally at SMEs, but grant schemes for R&D are being introduced all the time. Yorkshire Forward, for example, has introduced an R&D scheme for large companies based in Yorkshire.
There is also a large pan-European grant regime called ‘Framework 6’ which is available to companies involved in collaborative R&D projects with other companies and universities across Europe.
Employment and training
Government funds are now typically aimed at ‘training providers’ that can undertake the training. This activity is organised by the Learning and Skills Council.
Employment and training funding may still be gained in some areas of the UK through the regional development agencies or other economic development agencies. This is usually linked to certain categories of employees (typically dependent upon age, previous employment status and level of qualification).
The government also subsidises the employment of high-priority employee categories through the New Deal.
The EU makes provision for national governments to provide funding under environmental schemes and provides some environmental programmes directly. Environmental grant schemes are typically for small amounts of money, but this will depend on region.
Capital investment in the assisted areas
There is a substantial grant scheme in the UK for SMEs, which is available to any company making an investment in an assisted area that also creates or safeguards employment. The scheme is called Selective Finance for Investment (SFI) in England, and a variation of the scheme is called Regional Selective Assistance (RSA) in Wales and Scotland. A related but simplified scheme also exists in Northern Ireland. Companies seeking the grant funding must offer an explanation demonstrating why the grant will allow the project to proceed in the UK.
They must also identify the amount of grant, which will be necessary for the project to proceed. The government will not pay more than a set percentage of the eligible capital expenditure. This can be up to 35 per cent in Liverpool, 20 per cent in Glasgow and 15 per cent in Manchester.
These are legally enforced limits and the government also limits the amount paid per job created. The UK average is £5,000 per job, although this may vary depending on sector: a pharmaceutical R&D environment might be awarded £10,000 per job.
Real estate development
Where companies are undertaking real estate development but the end value of the project will be less than the cost of development and construction, it is possible to gain grant funding to meet the difference (within set limits).
The gap between cost and value might arise because of contaminated land or difficult ground conditions but the gap may also exist because of market failure in areas of deprivation.
Increasingly, this is being used only for regionally important development projects rather than multiple small building schemes.
This article was written by Ernst & Young Director Nigel Wilcock and was originally published in Masterclass magazine. Wilcock specialises in regional development work and is an expert on government funding for corporate investment.
Further reading on government grants:
- 118 business grants available through the small business finance app.