Government grants and loans for businesses

Cash injections, in the form of government schemes and loans, are key to aiding small businesses, which make up 99.2% of the business population in the UK.

The government is able to provide financial support to businesses at a national and regional level, and this generally takes one of three forms: grants, loans, and equity investments.

Read on to explore which of these options is a good fit for your business.

Grants

A grant can provide a much-needed boost to working capital and an opportunity for growth.

There are many government sponsored grants available for UK businesses. The Welsh government has a list of over 1,000 government grants, Enterprise Ireland also offers a list of funding options. The Scottish government also provides hundreds of government-funded grants.

However, most grants are only available for specific kinds of organisations (e.g. Arts Council grants for arts organisations), for specific purposes (e.g. funding for employee training), or come with other stringent criteria attached (e.g. you must prove that the grant will fund activity that has wider economic benefits for the area, or will create a certain number of jobs).

Grants, therefore, aren’t a direct substitute for loans and the application process can be lengthy.

Loans

Government-backed loans to businesses usually take one of two forms: the government loans the money directly via a publicly owned bank, like the British Business Bank; or the government guarantees a loan from a private bank, opening up access to lending that would otherwise be unavailable. Such loans are available at national, regional, and local levels.

A Start Up Loan is one of the most popular government loans for budding entrepreneurs. Businesses can receive £500 to £25,000. However, this loan is an unsecured personal loan, which means you’ll need to pass a credit check.

You’ll get support and guidance with writing a business plan and, if the loan is approved, you’ll receive a year of free business mentoring.

British Business Bank

The British Business Bank is a publicly-owned development bank that supplies loans to startups (up to £25,000 at 6% p.a.) via the Start Up Loans Company. It can also guarantee loans to banks, peer-to-peer lenders, and non-profit lenders via schemes, such as the Enterprise Finance Guarantee.

These loans are sometimes known as ‘soft loans’, this is because the loan has no interest or a below-market rate of interest. Such loans can allow businesses to scale up, grow sustainably, or maintain enough working capital to stay afloat when they’ve been denied loans by high-street banks.

Regional business loans funds

Alongside the national schemes, many regional funds can provide loans to SMEs looking to expand; or for larger businesses, which have the potential to  create jobs and bring general economic benefits to the region. One example is the Finance For Enterprise fund, which provides loans of up to £250,000 to businesses in South Yorkshire and the North Midlands.

Equity investments

Many of the same regional funds that provide business loans can also offer capital injections via equity investments. This is where the fund purchases an ownership stake in the company rather than lending it money.

One example of such a scheme is Finance Yorkshire, which provides equity-linked investments of up to £1.5 million to businesses with less than 250 employees. As a shareholder, Finance Yorkshire takes an active role in the companies it funds, sometimes appointing a non-executive director to the board.

Another example is the Low Carbon Innovation Fund, which offers an investment of up to £1 million on an equity or convertible loan basis. These are awarded to SME companies in the East of England that are developing environmentally sensitive products or services.

How to find and apply for government finance

The Business Finance Support Finder on the UK Government website currently features over 150 schemes throughout the country that are offered on a national, regional, or local level. The site provides general guidance on eligibility and it links to the funding body to make applications.

Better Business Finance is run by the British Bankers Association and the scheme is set up by the major banks and. It allows you to search for finance opportunities from regional funds, government schemes, investors, peer-to-peer lenders, and banks. There are links to the relevant funding providers’ websites to make applications.

The application process for each government or regional scheme is different and depends on the kind of finance being provided and the purpose of the scheme.

Our tips to help you secure funding

1. Make sure the finance is right for your business – remember that loans carry interest payments, and equity investment involves surrendering some of the ownership of your company. Take advice from an independent professional if you’re unsure.
2. Always read the eligibility criteria carefully – many schemes require that you provide evidence that supports your application. Make sure you’ll be able to meet the criteria before making an application.
3. Do your paperwork – your business plan, accounts, and cash flow projections will all need to be in excellent order when you apply for any kind of finance.
4. Apply early – don’t wait until the last minute to apply for the funding you need. Many application processes are lengthy and can be held up due to technical hitches. Once you’ve made up your mind about which schemes to apply to, don’t dawdle.

Next Steps

Choosing a loan or grant for your business will come down to your individual set of circumstances – after all, you know what’s best for your business. With tons of government resources available to help take your business’s finances to new heights, you have a range of options to choose from.

You can use our free comparison tool to help you navigate the choppy waters of business loans.