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Gaining external investment without showing early traction can be a challenge for many startups and could leave you feeling like there are no options to develop. But there are alternate funding avenues you can take as a startup without looking to Angel Investors or VCs such as Grant Funding. We talk about what Grants are, which ones are out there for you, and how do you apply.
What are Grants?
A grant, which there are a multitude to apply for (depending on your business type) are solely funded or match-funded (with you matching their input) money to support the growth or launch of your business or startup.
Pros and Cons of grants for startups.
The benefit of grants in comparison to a bank loan or other investment is that you don’t need to pay the money back and you won’t lose equity on your business. Government Grants can keep your business topped up until you’re ready for external investment, and will make you a more attractive offer so you can gain more investment without giving up more equity.
Although they do look attractive to many, grant application processes are time-consuming and you’re not always successful in your application, so choose wisely on which grants to apply for. But for more unique startup types and true innovators, there will be less competition and you’re more likely of funding success.
As with other investments, there will be a form of reporting to submit to show what the money has been spent on, but it won’t be as intensive as a VC investment, for example, but ensure you have covered your spend and incorporated reporting into your plans to ensure you’re not audited and cannot show your spend effectively.
What different Grants are there for my startup?
Here are just a few available grants for startups that can provide you with a boost in funding. In addition to those providing cold hard cash, there are other grant forms that can financially benefit your company like tax breaks.
Innovation Grant Funding
There are several funding competitions for, you’ve guessed it, innovative projects at Innovate UK. Be sure to read full guidance and eligibility criteria before applying to ensure it’s worth applying for your business.
There are also localised grants available from Local Authorities for a selection of projects which can be searched for on the Government Portal.
Innovate UK’s Smart Grants are investing up to £25 million in the best game-changing and commercially viable innovative or disruptive ideas. All proposals must be business-focused so lend themselves well to startups. The single or collaborative projects must last 6 – 18 months and have total eligible project costs between £25,000 and £500,000. With projects of 19 – 36 months must be collaborative and have eligible project costs between £25,000 and £2 million.
The Patent Box
The Patent Box allows companies to convert IP into a recurring relief on their corporation tax bill.
The scheme delivers a deduction on taxable profits generated by patented technologies and concepts. Eligible companies pay only 10% tax on sales of patented products and royalties instead of 19% which is an attractive money saver.
As with other funding avenues, the calculations are complex and time-consuming to work out and separate from other profits.
R&D Tax Credits
HMRC offers R&D funding through an R&D tax credit scheme, enabling businesses to gain money off taxes based on R&D spend. Although the fund is generous, not all businesses know they can access it so it is under utilised. If you are a SME, you can:
- deduct an extra 130% of qualifying costs from yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.
- claim a tax credit if your company is loss-making, worth up to 14.5% of the loss.
Check out the Government R&D Tax Credit guidance for more information.
There are a host of Grant opportunities out there, I think the moral of this blog is that you just need to search them out. yeah the process might take a while and there are hoops to jump through but that’s exactly the same with equity based investment.
Good Luck!!