What is a business grant? A complete guide to small business grants in the UK

A business grant is a sum of money given to your business, usually by the government, a local council or a private organisation, to help fund a specific project such as buying equipment, hiring staff or developing a new product. Unlike a business loan, you generally do not need to repay a grant, provided you meet the scheme's eligibility criteria and spend the money on what it was awarded for. A grant is not free money with no conditions attached. Most small business grants in the UK are competitive, restricted to a particular sector, region or type of project, and often only cover part of your costs, so it helps to understand how they actually work before you build a funding plan around one.

This guide explains what counts as a business grant, the main types available to small businesses in the UK, how eligibility and tax usually work, and how to put an application together. It also covers where to look for live schemes and what to do if a grant does not cover everything you need, or you do not qualify at all.

What counts as a business grant?

A grant is not just free money with no strings attached. Most schemes tie the funding to a specific purpose, such as buying new equipment, hiring an apprentice, researching a new product or improving your premises, and you will usually need to spend it on exactly that rather than wherever your business needs it most. Many grants also come with conditions. You might need to report back on how you spent the money, complete the project within a set timeframe, or contribute some of your own funds towards the total cost, known as matched funding. A scheme offering a grant that covers half of a project's costs, for example, only helps once you can find the rest yourself. This is what separates a grant from other types of business funding. A business loan is repaid with interest regardless of how well your project goes, and equity investment means giving up a share of your business in exchange for the money. A grant, by contrast, does not need to be repaid and does not cost you any ownership, as long as you stick to the terms it was awarded under.

Which types of business grants are available to UK small businesses?

Grant funding for small businesses in the UK is spread across several different routes rather than one central pot.

• National government schemes, run by government departments or Innovate UK, funding things like digital technology adoption, apprenticeships or research and development

• Local council and growth hub grants, usually worth a few thousand pounds up to around £25,000, aimed at start up costs or local productivity projects

• Devolved nation schemes, delivered through Business Wales, Scottish Enterprise or Business Gateway, and Invest NI

• Sector specific and innovation grants, often restricted to industries such as advanced manufacturing, life sciences or digital technology

• Grants and awards aimed at specific groups of business owners, such as schemes for women led businesses

What is the difference between a grant, a business loan and equity investment?

A grant is generally the cheapest way to fund a project if you can win one, since you keep full ownership and pay nothing back. The trade off is that grants are far more competitive and restrictive than a loan, and slower to arrange than most forms of business finance.

Eligibility depends on the individual scheme, but most UK business grants assess a similar set of factors.

• Where you are registered and trading. Most schemes require your business to be registered and operating in the UK, and some are restricted to a specific nation or region.

• The size of your business. Some grants, particularly innovation and manufacturing schemes, are restricted to businesses that meet the UK's official criteria for a small or medium sized company: fewer than 250 employees, turnover of no more than £54 million, and a balance sheet total of no more than £27 million. Other grants, including many local council and regional schemes, set no size limit at all, so it is worth checking each scheme's own criteria rather than assuming you need to qualify as an SME.

• Your sector. Innovation and manufacturing grants in particular are often restricted to specific sectors, such as advanced manufacturing, life sciences or digital technology.

• The stage your business is at. Some schemes are only open to businesses that have not started trading yet, others are aimed at established businesses looking to grow.

• Whether you can contribute towards the cost. Many grants require you to match the grant with your own money or investment, so you need to be able to fund your share upfront.

Do you have to pay tax on a business grant?

How a grant is taxed depends on what it is for. HMRC treats a grant that funds your general running costs as a taxable trading receipt, so you include it as income for the year you receive it and pay corporation tax or income tax on it in the normal way, the same as any other money your business earns. A grant that meets a specific piece of capital spending, such as buying equipment or machinery, is treated differently and is not normally counted as taxable income itself, though it will usually reduce the capital allowances you can claim on that asset. Because the exact treatment depends on what the grant is for and how your business is structured, it is worth checking with your accountant before you build your figures around the full amount.

How do you apply for a business grant?

• Find schemes you could actually be eligible for. Search the government's Find a Grant service and the business.gov.uk funding finder, then check your local growth hub or council and any body specific to your sector.

• Read the eligibility criteria in full before you start. A mismatch on sector, stage or location is one of the most common reasons applications get rejected outright.

• Get your business information ready. Most applications ask for your trading history, recent accounts and a clear outline of the project the grant would fund.

• Write a specific application. State exactly how much you need, what it will pay for and what it lets your business do that it could not do otherwise. A vague application is easy for a panel to turn down.

• Submit as early in the window as you can. Some schemes review applications on a rolling basis rather than waiting for the deadline, so an early application is seen by a less crowded panel.

• Know what happens if you are awarded the grant. Most schemes expect you to report back on how you spent the money, sometimes with evidence such as invoices or receipts.

Where can you find business grants in the UK?

To find a grant in the UK, you can start with the government's Find a Grant service, the central directory that lets you filter by business type and eligibility before you apply. From there:

• Search the business.gov.uk funding finder for grants, loans and equity options in one place.

• Contact your local growth hub or council directly, since small local grants are rarely advertised as widely as national schemes and are often only listed on the council's own website.

• If you are in Wales, Scotland or Northern Ireland, check Business Wales, Scottish Enterprise or Business Gateway, and Invest NI, since these often run grants that do not appear in England focused search tools.

• If you are applying for research or innovation funding, check Innovate UK directly, since delivery and funding levels change between rounds.

What are the advantages and disadvantages of a business grant?

A grant is often the best value funding you can get if you win one, but it comes with some trade offs against other types of business finance:

Advantages of a business grant

• Does not dilute your ownership, unlike equity investment

• Does not add to your monthly outgoings, unlike a loan repayment

• Winning a competitive grant or award can add credibility when you are talking to lenders or investors afterwards

• Frees up cash for other costs, since the project it funds is already paid for

Disadvantages of a business grant

• Highly competitive, so many schemes receive far more applications than they can fund

• Often restricted to a narrow set of sectors, regions or project types

• Usually only covers part of your costs, so you still need to fund the rest yourself

• Only open for a set application window each year, rather than available whenever you need it

• Comes with reporting requirements, so you need to track and evidence how you spent the money

Get business finance if a grant is not right for you

Business grants can be a valuable way to fund a specific project without taking on debt or giving up a share of your business. But they are not always available when you need them, and many only cover part of the total cost. Applications can also be competitive, with strict eligibility criteria and conditions on how the money is used. For that reason, it's worth considering grants alongside other forms of business finance rather than relying on one as your only option. If you need funding sooner, do not qualify for the grants available to you, or need to cover costs that a grant will not fund, there may be other options that are better suited to your business.

Capitalise gives you access to a panel of 130+ UK lenders through one application, with support from a dedicated funding specialist to help you understand your options and find funding that fits your business.