Using grants: the advantages and disadvantages

Financing a new business is tough, and it can be all but impossible for a fledgling start-up to secure mainstream lending.

Business grants offer opportunities to raise seed capital without the financial pressure of repayable loans.

However, as we’ll discover in this guide to the advantages and disadvantages of grants, a business grant isn’t ‘free money’ and does have drawbacks.

Before you apply for any form of grant, we recommend you equip yourself with the correct information to decide whether it’s the best option. Contact Harper James Solicitors for legal advice from startup lawyers in London and all over the UK.

What are the advantages of applying for a start-up business grant?

The obvious positive with grant funding is that you don’t need to pay back the cash – a considerable advantage over loans or shareholder investment!

Alternative financing structures usually involve things like:

  • Interest charges
  • Handing over a proportion of business shares
  • Regular repayments
  • Diluting your share ownership
  • Offering personal guarantees

Grants can raise hundreds of thousands of pounds, so they may be far more viable than other options if you have a new venture.

Other benefits of grant funding

As with crowdfunding advantages and disadvantages, it’s crucial to compare the various routes to financing a new business before you apply.

Securing a prestigious grant carries a multitude of benefits above and beyond the financial support:

  • Increased likelihood of securing additional grants in the future
  • Enhanced credibility afforded by backing from a grant funder
  • Free advertising through the grant awards publication process

If you can find a grant applicable to your niche, and can get it, you stand a greater chance of succeeding and seeing continued growth.

Are there disadvantages to grant funding?

While business grants are a lucrative way of funding a new concept, there are pitfalls to factor into your planning.

New ventures should seek legal support to ensure you hold the copyright to your business name.

That’s because grants awards are often publicly announced, and so you’ll need to be in a position to get started as soon as the funds are allocated.

Many grants are only available to existing companies, so it’s wise to incorporate or set up your business before you apply to increase your chances of success.

Eligibility for UK business grants

Grants usually invite applicants meeting specific criteria, so you need to invest ample time in research before drafting any entries.

For example, a grant might be focused on:

  • Specific geographical regions
  • Defined niches or areas of research and development
  •  Certain products or consumer goods
  •  Emerging technologies or sustainability techniques

You must do your homework and be sure you qualify before applying since grant applications usually involve substantial amounts of paperwork.

Creating a business plan before applying for a grant

Funders won’t accept a bid without having some certainty that it’s likely to be viable.

New businesses need to produce a business plan, forecasts, market research, and technical information to back up their proposal.

Another downside is the stiff competition from rival businesses.

Even if you hit every entry requirement and your application is accepted for consideration, there’s no guarantee you’ll be awarded a grant.

Therefore, it’s worth assessing the amount of time required to put an entry together against the likelihood of success.

Applying for a business grant

Grants are a helpful tool, and while they can be challenging to find, they are a stepping-stone for small businesses with excellent benefits.

However, most are one-off projects, so they aren’t a renewable form of finance.

You must have an exit strategy in place and formulate a plan showing how you will continue to grow your business once the grant-funding period comes to an end.

If you find a grant you’re interested in, we’d recommend you seek advice to ensure the terms of the finance agreement are acceptable to your business.

For further information about potential business grants to support your company, contact the Harper James Solicitors team for impartial, professional guidance.

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