Small business grants and loans

If getting business funding though your bank is starting to feel like banging your head against a brick wall, don't despair. Here we look at some less painful ways to secure finance.

If getting business funding though your bank is starting to feel like banging your head against a brick wall, don’t despair. Here we look at some less painful ways to secure finance.

Government grants for small businesses

You will need to apply for grants through your local council, which will have a list of what’s available. The typical amounts up for grabs are from £500 to £1,000, but in some cases businesses can apply for multiple grants.

There are three main factors that will determine your eligibility for a grant:

Location: if the business is based in an area that is undergoing regeneration, there is likely to be more money available for start-ups. Areas in East London undergoing Olympic development and parts of the North of England have more money set aside for grants.

Size: generally, grants only tend to be available for businesses starting up. Getting a grant as an established company in London, for example, is near impossible, says Andy Berrow from Business Link in London.

Sector: the grants that you are eligible for will depend upon your industry, and which sectors are in favour depends, in turn, depends on your location. In London, privileged sectors include hospitality and tourism, restaurants and the creative industries.

Before applying for a grant, you should prepare a business plan working out how much money you need to start and whether there is a market for what you are doing.

Community Development Finance Initiatives (CDFI)

There are more than 60 of these organisations in the country, which provide loans and support to businesses and individuals.

Nicholas Nicolaou, managing director of GLE oneLondon, a CDFI, says the initiatives are designed to help viable businesses in need of funding.

The sorts of loans accessible will vary depending on the region and CDFI. So you will need to go to the Community Development Finance Association website to view what’s available where you are. In London, for example, there are various loans for small businesses, such as through the Mayor’s Economic Recovery Loan Fund, which provides sums of between £10,000 and £50,000, at a rate of 7.85 per cent, with an additional one per cent arrangement fee.

The other major advantage of using money available through the CDFIs is that they don’t take into account credit history, will look at applications on a case-by-case basis and tend to cover all sizes of business from the sole trader looking to boost cash flow to a multimillion pound concern set on expansion.

Research & Development (R&D) business grants

Grants for research and development are for introducing technological innovation in your business. The amount you are eligible for will depend on the size of your business and the project you are undertaking. Grants are available for projects worth between £5,000 and £500,000 and will cover a percentage of the total cost of project (usually between 35 to 65 per cent).

The Prince’s Trust

The Prince’s Trust is open to 18 to 30-year-olds who are unemployed or working fewer than 16 hours a week. In addition to business training schemes, the programme provides funding of up to £4,000 (or £5,000 for partnerships), along with support for your business idea.

The typical amount of funding businesses usually receive from the Trust is £2,500. Interest on the loan is three per cent (to cover administration charges) and the repayment scheme requires that you only hand over £20 for the first six months, with the remainder spread out over a period of two to five years.

The Carbon Trust offer zero-interest loans

If you are looking to cut down on your overheads by using more energy-efficient equipment, you can get zero-interest loans of between £3,000 to £400,000 at 0 per cent with The Carbon Trust. There’s no arrangement fee and loans are repayable over a four-year period. For more information visit The Carbon Trust website.

Invoice discounting

Through this facility, you can get an advance onmoney owed to you by customers. Essentially it acts as an overdraft, with the payment due acting as your security. Both banks and specialist finance providers offer invoice discounting but terms will vary, so it’s worth shopping around.

John Benner, director at commercial financial company IGF Group, says this option tends to be relevant for companies that trade in the B2B market, have a turnover of more than £50,000 and are seeking money against overdrafts worth between £100 and £100,0000. ‘The amount we provide will depend upon the company, but it will typically be 80 per cent of the value of invoices discounted. We then take a cut of between three to six per cent,’ he says.

For companies concerned about late payment, there are also factoring services available. They do cost more than invoice discounting, but also provide you with a debt collection service. For more information see our guide to asset based lending and invoice finance.

Alan Dobie

Alan Dobie

Alan was assistant editor at Vitesse Media Plc (previous owner of before moving on to a content producer role at Reed Business Information. He has over 17 years of experience in the...

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