Grants & Loans
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What is a business grant?
- A sum of money awarded to a business from national or local government
- There are most often given by the UK government or non-profit organisations to help assist a startup in its development
- Grants are often awarded to startups who are involved in innovative new developments in their sector
- Business grants can be awarded to any business, but are often favoured by new startups and small companies
- The money does not need to be paid back
What is a business loan?
- Money lent to business owners for use in the development of their companies
- Business loans are awarded to companies by financial institutions such as banks and building societies, but there are some specialist loans from the UK government
- They are repaid, often with interest, over an agreed period
- Business loans can be either secured (linked to an asset) or unsecured (smaller loans that do not require assets but have higher interest rates)
- Business loans can be lent to any business but are usually requested by a new startup or a small company
What is the difference between a business grant and a loan?
People may get the terms “business grant” and “business loan” confused when they are very different. A grant is backed by the government or non-profit organisations and is rarely offered by financial institutions. Grants do not have to be repaid and take longer to access funds than a business loan. The amount of money you are entitled to for a business grant is set by the government or organisation offering it. You will usually apply for the amount stated.
In contrast, a loan is offered by institutions such as banks, building societies and credit unions, and is rarely provided directly by the government. You can request the amount of money you need, but you will need to pay it back after a certain period, often with interest.
What government grants are available for startups and small
businesses in the UK?
- Innovation grants: provided by bodies such as Innovate UK to support innovative ideas and business growth
- The National Lottery Heritage Fund: offers grants that help transform the UK’s heritage, often in the form of museums and historical places
- The Prince’s Trust: supports young people aged between 18 to 30 who want to start and run their own business
- R&D tax credits: payments that help encourage a business to carry out research and development projects relating to science or technology
- Local Enterprise Partnerships (LEPs): voluntary partnerships between local authorities and businesses that offer funding and support in their local areas
- New Enterprise Allowance: offers support and funds for anyone looking to start their own business. They must be aged 18 or over and on Universal Credit, Job Seeker’s Allowance or Employment and Support allowance
What loans are available for startups and small businesses in the UK?
- The Start Up Loan: backed by the government and available to aspiring entrepreneurs developing a new business of their own. Individuals can apply for up to £25,000 each, up to a maximum value of £100,000 per business, and they then repay the amount over five years
- The Prince’s Trust Enterprise Award: provides funding of between £500 and £5,000 to potential business owners between the ages of 18 and 30
- The Virgin Start Up Loan: offers funding between £500 and £25,000 to aspiring entrepreneurs. You can agree on a repayment period of between one to five years
- The HSBC Small Business Loan: offers between £1,000 and £25,000, with a fixed interest rate and a three-month repayment holiday at the start of the contract term
- The Enterprise Finance Guarantee (EFG): guarantees loans between £25,000 and £1.2 million, helping small businesses to grow further
- The NatWest Small Business Loan: the ability to borrow between £1,000 and £25,000, but you may need to provide security to access funding
Pros and cons of government grants and loans for a startup business
Grant pros
- Free money
- You retain control of your business
- Funding is in good supply
- Many different options of grants are available, tailored towards startups in different sectors
- Having a grant will give your business a sense of prestige and further recognition
Grant cons
- The application process is lengthy and time-consuming, and it can take several months for an application to be approved
- You are in direct competition with other startups who are looking for the same grant
- You cannot choose the select amount of money you desire
- Grants are not always renewed; you may need to apply yearly
Loans pros
- Will allow you to grow your business
- You retain control of your business
- No interference from the institution that offered the loan
- Favourable interest rates compared to credit cards
- You can request as little or as much money as you like
Loans cons
- Not suitable for ongoing expenses
- Secured loans carry the risk of losing your asset
- Strict eligibility criteria
- In some cases, a lender may approve the loan but not for the full amount
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