Overview of government business funding in the UK
Government funding for small businesses in the UK comes from multiple sources: central government departments, the British Business Bank, Innovate UK, local enterprise partnerships (LEPs), and the devolved administrations in Scotland, Wales, and Northern Ireland. Some programmes offer direct grants that do not need to be repaid, while others provide loans on favourable terms or guarantees that make it easier for private lenders to approve applications.
The landscape changes regularly as schemes open and close, so checking eligibility and availability before investing time in an application is essential. The government's own business finance finder tool is a good starting point, and a business finance broker can also help identify which schemes are currently accepting applications.
Start Up Loans: government-backed funding for new businesses
The Start Up Loans programme remains one of the most accessible forms of government-backed finance for new businesses. Delivered through the British Business Bank, it provides personal loans of £500 to £25,000 at a fixed interest rate of 6% per annum, repayable over one to five years. The scheme is open to individuals who have been trading for fewer than 36 months or who have not yet started trading.
Beyond the loan itself, successful applicants receive 12 months of free mentoring from an experienced business mentor, which can be invaluable in the early stages. Applications are assessed primarily on the viability of your business plan rather than conventional credit criteria, although a basic credit check is still carried out.
Recovery Loan Scheme
The Recovery Loan Scheme (RLS) helps businesses access finance by providing a government guarantee to the lender. This reduces the lender's risk and makes it more likely they will approve applications from businesses that might otherwise be declined. The scheme covers loans from £25,001 to £2 million, with the government guaranteeing 70% of the finance to the lender.
The RLS is available through accredited lenders including banks and alternative finance providers. It covers term loans, overdrafts, invoice finance, and asset finance. To be eligible, your business must be trading in the UK and be viable in the medium to long term.
Innovate UK grants and funding
Innovate UK is the UK's national innovation agency, providing funding for businesses developing genuinely innovative products, services, or processes. Their funding programmes include:
- Smart Grants: Open to any UK-registered business working on a game-changing innovation. Grants range from £25,000 to £2 million and typically fund 25% to 70% of eligible project costs depending on your business size
- Catalyst programmes: Sector-specific funding for innovations in areas like healthcare, clean energy, and manufacturing
- Innovation loans: For late-stage R&D or pre-commercialisation activities, with loans of £100,000 to £2 million
- Knowledge Transfer Partnerships (KTPs): Funding for collaborative projects between businesses and universities
Innovate UK grants are competitive and require a detailed application. Success rates vary by programme but typically range from 10% to 25%. Applications are assessed by independent panels on criteria including innovation, commercial potential, and the capability of the team.
Regional and local business grants
England: Local Enterprise Partnerships
Local Enterprise Partnerships (LEPs) across England manage regional funding programmes, often including grants for small businesses. These vary significantly by area and may target specific sectors, growth-stage businesses, or businesses in particular locations. Check your local LEP website for current opportunities.
Scotland: Scottish Enterprise and Business Gateway
Scottish Enterprise provides grants and support for businesses with growth potential, including the Scottish Growth Scheme and various sector-specific funds. Business Gateway offers free advice and may direct you to local grant programmes. Highlands and Islands Enterprise covers businesses in the Highlands, islands, and Argyll.
Wales: Business Wales
Business Wales offers grants and support including the Business Wales Accelerated Growth Programme, the Social Business Growth Fund, and various sector-specific schemes. The Development Bank of Wales provides loans and equity investment for Welsh businesses.
Northern Ireland: Invest Northern Ireland
Invest Northern Ireland offers a range of grants including the Growth Accelerator Programme, Innovation Vouchers, and Technical Development Incentives. InterTradeIreland also offers programmes for businesses trading across the border.
Small Business Grant Fund and similar schemes
Various grant funds specifically target small businesses. These include:
- Digital skills and technology grants: Help small businesses adopt digital tools and technology
- Export grants: Support businesses entering overseas markets for the first time
- Green business grants: Funding for energy efficiency improvements, renewable energy adoption, and sustainable business practices
- Apprenticeship grants: Financial support for businesses taking on apprentices
Tax reliefs that work like grants
While not technically grants, several UK tax reliefs provide significant financial benefits to small businesses:
- R&D Tax Credits: Small and medium-sized businesses can claim enhanced deductions or cash credits for qualifying R&D expenditure
- Annual Investment Allowance: Deduct the full cost of qualifying plant and machinery up to £1 million per year from your taxable profits
- Employment Allowance: Reduce your employer National Insurance contributions by up to £5,000 per year
- Patent Box: Pay a reduced rate of Corporation Tax (10%) on profits earned from patented inventions
How to apply for government business funding
- Identify relevant schemes: Use the government's business finance finder or speak with a business finance broker to identify which programmes you may be eligible for
- Check eligibility criteria carefully: Each scheme has specific requirements regarding business size, sector, location, and intended use of funds
- Prepare a strong application: Grant applications typically require a detailed business plan, financial projections, and a clear explanation of how the funding will be used and what outcomes it will achieve
- Allow sufficient time: Grant applications can take several weeks to prepare and several months to be assessed. Do not rely on grant funding for urgent needs
- Consider alternative finance alongside grants: While waiting for grant decisions, bridging finance or other short-term options may cover immediate requirements
Get help finding the right funding
Navigating the range of government funding options can be complex. A specialist broker can help you identify the most suitable schemes and, if grant funding is not available or appropriate, find competitive commercial finance instead. Nesto matches you with an experienced business finance specialist for free. Get Matched Free to explore your options.