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Government grants and loans for businesses

09/11/2016

Bank lending to businesses fell dramatically following the financial crisis and is yet to fully recover. That’s left funding options restricted for many businesses, particularly startups and small to medium sized companies. Thankfully the government has stepped in to at least partially tackle this shortfall through a number of schemes aimed at boosting the finance available to entrepreneurs, either through direct cash injections or by removing barriers to obtaining loans.

What kind of government support is available?

The government can offer financial support to businesses at a national and regional level. Support generally takes one of three forms: grants, loans and equity investments.

Grants

There are many government sponsored grants available for UK businesses. A grant can provide a much needed boost to working capital and an opportunity for growth.

government business loans

However, most grants are available only to 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 very lengthy.

Loans

Government backed loans to businesses usually take one of two forms: either 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.

British Business Bank

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

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 there are also many regional funds which can provide loans to SMEs looking to expand or larger businesses which will hopefully bring jobs or general economic benefits to the region. Examples of such funds are the Finance For Enterprise fund, which provides loans of up to £150,000 to businesses in South Yorkshire and North Midlands, and London Small Business Centre, which provides loans of £500 to £25,000 to London businesses.

Equity investments

Many of the same regional funds which provide loans to businesses can also offer capital injections via equity investments, 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 £2 million to businesses with less than 250 employees. As a shareholder Finance Yorkshire takes an active role in the companies it funds, sometimes pointing a non-executive director to the board.

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

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How to find and apply for government finance

The Business Finance Support Finder on the UK Government website currently features over 500 schemes throughout the country which are offered on a national, regional or local level. The site provides general guidance on eligibility and links to the funding body to make applications.

Better Business Finance is a scheme set up by the major banks and run by the British Bankers Association. It allows you to search for finance opportunities from regional funds and government schemes as well as angel 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 depending 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 that 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 which 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 cashflow projections will all need to be in excellent order when applying 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.

Expert Market is a trading name of Marketing VF Limited, which is an appointed representative of Resolution Compliance Limited (FRN: 574048) ) which is authorised and regulated by the Financial Conduct Authority. Marketing VF Limited is registered in England and Wales. Company number: 06951544. Registered office: Imperial Works, Block C, Perren Street, London, NW5 3ED, United Kingdom.