Government grants and loan schemes

The government offers a number of business loans and grants, as do Regional Development Agencies and local authorities.

Grants are usually awarded for specific projects or uses, are often related to particular business sectors or geographic locations, and usually require matching funds from the business. There are various types of grant; some are for business development, some for investment in plant or equipment, others for training.

There are also several government-backed loan and investment schemes to help businesses raise finance.

Government loan and investment schemes

The government has set up an 'emergency' package of schemes designed to provide SMEs with easier access to credit and to help with the cash flow problems afflicting many firms during and in the aftermath of the economic downturn.

Enterprise Finance Guarantee Scheme

The Enterprise Finance Guarantee is intended to help smaller, credit-worthy companies which might otherwise fail to secure the funding needed for working capital or investment finance.

The government is providing £1 billion of guarantees to support up to £1.3 billion of bank lending to firms, with an annual turnover of up to £25 million, which are looking for loans of up to £1 million for a period of up to 10 years.

The guarantee applies to loans and can also be used to convert existing overdrafts into loans so businesses can free up their current overdraft facilities to use as working capital.

The scheme is available through a number of lenders including: Airdrie Savings Bank; Alliance and Leicester Commercial Bank; Bank of Ireland (Northern Ireland); Bank of Scotland; Barclays; Clydesdale/Yorkshire Bank; Co-operative Bank; HSBC; HBOS; Lloyds TSB; Northern Bank (Northern Ireland); RBS/Natwest; Ulster Bank (Northern Ireland); Whiteaway Laidlaw Bank; Yorkshire Bank.

Working Capital Scheme

Aimed at larger businesses is the Working Capital Scheme, which secures up to £20 billion of short-term bank lending to companies with a turnover of up to £500 million.

Under the Scheme's terms, the government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20 billion.

As well as guaranteeing working capital credit lines for companies - ensuring they will not be reduced or withdrawn - the scheme should free up capital which the banks, as a condition of the package, must use for new lending.

Capital for Enterprise Fund

The Capital for Enterprise Fund provides £75 million of funding, of which £50 million comes from the government and £25 million from the banks (including Barclays, HSBC, Lloyds TSB, and RBS).

The fund, which combines both private and public money, enables innovative, high growth businesses to sell debt in exchange for equity. Firms with a turnover of up to £50 million can gain high risk capital of between £200,000 and £2 million.

More details about the schemes can be found on the Department for Business, Innovation and Skills website at http://www.bis.gov.uk/.

Other government loan and grant schemes

The Government aims to provide more UK entrepreneurs and businesses with the access to finance they need. Further details about the Government support available for SMEs seeking finance can be found at http://www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance.

Small loans for business

This scheme offers loans of up to £50,000 to SMEs with viable business plans but which have been denied finance by the banks.

Finance for Business

Another scheme that enables small firms to access financial solutions such as equity funds, debt funds and loans.

Grants for research and development

The grants are intended for those businesses that conduct research and development work into products or processes that are technologically innovative.

Grants are available for a variety of different purposes: developing low-cost projects (up to £20,000 for businesses with fewer than 10 employees); testing the commercial potential for a new idea or technology and assessing the commercial viability of a new idea or technology (up to £100,000 for businesses with fewer than 50 employees); developing a pre-production prototype that involves a technological advance (up to £250,000 for businesses with fewer than 250 employees); and developing a strategically important new technology (up to £500,000).

Grants for research and development are now known as Smart Grants and can be applied for through the Technology Strategy Board. These are available for small and medium sized enterprises in any sector in the UK. More information can be found on their website (http://www.innovateuk.org/).

Collaborative research and development grants

The grants support those firms that work together with other businesses or with universities in order to develop new products or services. Grants range between 25 per cent 75 per cent of the costs of the research and development.

More information can be found at the Technology Strategy Board website (http://www.innovateuk.org).

Other channels

A number of businesses find themselves chasing more money than a private business angel would be happy to provide but less than would interest a venture capital firm.

In England, the government-backed Regional Venture Capital Fund (RVCF) has been designed to help businesses bridge the so-called equity gap.

The RCVF provides risk capital finance of up to £500,000 for SMEs that have fallen into the equity gap. In Scotland, the Scottish Venture Fund and the Scottish Co-investment Fund can offer investment from £20,000 up to £2 million for high-growth businesses.

Details can be found at Department for Business, Innovation and Skills and the Scottish Enterprise (http://www.scottish-enterprise.com) websites.

Additional sources of finance

Community Development Finance Institutions

Businesses that are operating in disadvantaged areas or sectors may be eligible for funding from a Community Development Finance Institution (CDFI).

The purpose of CDFIs is to give such small and micro businesses access to capital that can be used to buy equipment or lease premises. Loans cover amounts from as little as £50 up to £1 million.

More information about CDFIs is available at the Community Development Finance Association website. (http://www.cdfa.org.uk).

Small self-administered schemes (SSAS)

By and large, firms cannot borrow money from their pension funds. However, small self-administered schemes (SSAS) allow some firms to do just that.

SSAS are occupational pension schemes for shareholding directors of small companies. Provided specific conditions are adhered to, SSAS mean that the company can borrow money from the pension fund for capital investment in long-term assets.

The restrictions are very tight. Only 50 per cent of the value of the assets can be borrowed; and the loan must be secured, for a fixed term and at a rate of interest at least 1 per cent above the clearing banks' base rate.

Any scheme must be approved by HM Revenue and Customs (HMRC) and requires a formal loan agreement.

More information on SSAS can be found at the Pensions Advisory Service website.

Applying for a government grant

Grants usually come with strict terms and conditions. That said, a business may find that applying for a grant is a considered and realistic option. If that is the case, you should plan your application carefully.

Any business that decides to apply for a government grant must first make sure that it is eligible and qualifies for the funding.

The business should also be able to demonstrate that the funds are required for a particular purpose; and it should be in a position to contribute money to the project itself.

It is always advisable to enlist the help of a professional advisor before putting together a detailed application. They will guide a business towards the most appropriate sources of funding and those that the business will have the greatest chance of success in securing.

Once a business has determined which type of grant is most suitable to its needs, it must next assemble its application.

In submitting an application, a business must fully acquaint itself with the notes issued by the grant-giving body. These will describe what the body wishes to know about the business that is making the application.

To be successful, a grant application should normally include a number of documents. There should be a comprehensive description of the project for which funding is being sought, along with details of the aims and benefits of the project.

To back up the project description, there should be a full costing plan, showing how and why the money will be spent. A business biography setting out the experience and expertise of the owners/directors, and of any key personnel, is also important. An intelligent and thought-through business plan that demonstrates how the grant will help the company develop will add a longer-term perspective to the application. And, if this is required, there should be a persuasive outline of the economic advantages the project or investment will deliver to the local area.

Those assessing the application will look for particular indicators. Among other criteria, they will want to see that there is indeed a requirement for a grant. They will want to be convinced of the expertise of the business owners. They will judge the innovation of the project. And they will evaluate its significance.

So it is vital that all the relevant information and important support material are presented clearly and unambiguously. As your accountants, we will be able to offer guidance and help in putting together the application so that it presents a cogent business argument.

If anything needs clarifying, a business should get in touch with the person or people who are administering the grant. Often they will be able to answer any questions or supply advice.

Where a grant is dependent on matching funds, a business should begin the process of getting its portion of the funding in place before the grant application is submitted.

Applying for a loan or grant, or seeking outside investors, can require professional advice and guidance. We would be more than happy to help you in any application.