Grants – money paid by the government or a private organisation to fund projects that it wants to support and which doesn't need to be paid back
To remember what grants mean, use the following mnemonic:
The genie granted (grants) him his wish. Instead of paying the government taxes, the government gave him money in the post every week without needing to pay it back.
Grants must be applied for, and if deemed acceptable, a business can receive a sum of money which does not need to be paid back. The business does not need to relinquish a portion of ownership as would be expected by a regular investor.
Money used for grants are sourced (taken) from taxpayers and given away to business by people who work for the government (bureaucrats). These officials are often paid to monitor how the sum of money has been used and that the agreed criteria for the grant has been met. The grant money is paid in a lump sum but may be paid to reimburse a business owner after spending their own money, or paid to match their personal investment.
Business grants have very specific eligibility criteria which can vary as follows:
The size of the business
Grants are often offered to start-ups and small businesses that have plans to grow but do not have the capital to fund it.
Where you are based
If you are setting up a business in an area of economic decline, governments are more likely to give you a grant.
The sector you are in
Grants are often offered in industries which the government wants to see grow, such as the green energy sector.
What you will use your grant for
Common uses of business grants include the funding of employee training, the purchase of equipment, payment towards rent for premises or the purchasing of stock.
There are however disadvantages to government business grants, such as the fact that because grants disproportionately fund start-ups and small businesses, most of the grant money ends up being lost. This is because 95% of start-ups fail. Some argue that this grant money would be better spent helping already established companies to grow and provide more employment opportunities. The allocation of grants by government agencies may also be done to gain favour in certain voting demographics or to be in line with a certain government policy, which may not be in the best interest of the economy and the taxpayer. It can also be a very long process to receive business grants, and by the time the money is deposited, the opportunity that the grant application was submitted for is no longer available.