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Guide to Innovation Grants
Innovation grants are a fantastic way for businesses that undertake new scientific or technological developments to get funding.
The path to obtaining an innovation grant is not an easy one but the reward is well worth the effort.
At Clifton Private Finance, our team are dedicated to helping your business get the funding it needs - this Guide to UK Innovation Grants has been developed as part of our ongoing commitment to business support.
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Contents
- The UK Government’s Commitment to Innovation
- Grants and Innovation
- Innovation Grants vs. Loans
- Innovation Grants vs. Equity Investment
- What is Innovation and R&D?
- Financial Support for UK Innovation Businesses
- Innovate UK
- Other Innovation Grants and Support
- How to Get an Innovation Grant
- Innovation Grant Assistance from Clifton Private Finance
The UK Government’s Commitment to Innovation
The UK Government has a vision that by 2035, the UK will be a global hub for innovation. To this end, as part of the UK Innovation Strategy, it has a stated a commitment to increase the annual public expenditure on R&D projects to £22 billion.
This commitment comes directly to innovation-centric business in the forms of grants and tax relief (alongside other less-direct benefits) boosting the potential for scientific and technological R&D undertakings by providing a foundation of secure non-dilutive funding with no repayments.
Grants and Innovation
In business, innovation is the process of developing new concepts, in terms of products, strategy, services, or communication, to further goals.
Capital is perhaps the most significant hurdle to overcome when developing innovative products or services, as without appropriate financial resources, research and development cannot efficiently take place.
Even in profit-making scenarios, the redirection of funds to R&D projects is a careful balance, often difficult to justify without any clear guarantee of success.
Grants offer the best opportunity for innovation companies to secure the capital they require. Not only do grants provide the necessary funds, but the restrictions that come with significant grant funding ensure that the money is directed in the most appropriate way, directly towards the research and development of innovation projects without conflict with other business concerns.
Applying for, and successfully winning a grant is a lengthy and complicated process.
Though this is typically seen as an onerous disadvantage, the uncompromising nature of grant funding serves to improve focus and forces the businesses looking to be awarded funding to properly scrutinise their proposal and associated projects - a process that will, in itself, help cement the project’s remit.
Innovation Grants vs. Loans
Grants are not the only route to obtaining capital for businesses in the innovation sphere.
Traditional business loans are another avenue for companies to consider when looking to raise funding, however, the nature of research and development can make loans a far less appropriate option.
Problem with Loans #1 - Repayment
The central difference between a grant and a loan is, of course, the obligation for repayment. A loan must be paid back, typically with interest and additional fees, while a grant is ‘free money’, provided with no direct financial responsibility of return.
The repayment problem turns an innovative R&D project into a business-centric project, with its own responsibility to generate revenue to make the investment directly viable. In simple terms, the R&D project has to one day make enough money to pay back the loan.
Even if this is offset through other company activities, that is to say that other aspects of the company’s work effectively ‘hold up’ the research and development, the business imperative for profit demands that the outcome of any innovation project must ultimately generate a return.
This becomes a burden or liability that the innovation project must hold as sacrosanct, often putting it above other considerations.
Ultimately, the need for the innovation project to ‘be worthwhile’ or ‘financially viable’, can lead the research in inferior and unwanted directions, tainting the core vision of the project and sometimes missing it entirely.
The repayment aspect of a loan, therefore, is at odds with the pure innovation aspect of the project, making loans a far less suitable option than an innovation grant.
Problem with Loans #2 - Suitability
A business loan application considers far different criteria than an innovation grant application.
Where the innovation grant will put the potential success of the project and the progress it makes to both the business and the UK as a whole at the centre of its consideration, a lender is going to want to see a direct business viability aspect to approve a loan.
Similar to the problems brought about due to the repayment aspect of the loan, this business viability consideration may lead to the project’s alteration to meet requirements.
Plus, even with adjustments made to the project goals and methods to ensure business viability, there is still no guarantee that it will be accepted as a viable prospect and that the loan application will be a success. Loans for pure research and development projects are, perhaps unsurprisingly therefore, difficult to obtain.
Problem with Loans #3 - Business Impact
The third problem a business loan may bring that an innovation grant neatly sidesteps, is the impact on other parts of the business. Once the company has utilised the credit available to it to funnel into research and development, those potential resources are no longer accessible for other business needs.
Expansion suffers when marketing departments or human resources are curtailed due to capital and cashflow becoming tied up for innovation projects. No matter the positive potential of the R&D, it may simply be a poor business decision to fund it through a loan.
Innovation Grants vs. Equity Investment
Capital brought in through investment, from private equity firms or by seeking further funding from existing investors, offers another alternate route to the innovation grant application, but like business loans, third-party equity is not without its issues.
Problem with Equity Investment #1 - Loss of Control
The tradeoff between investment capital and the compromises regarding business control and ownership are quickly understood, however, there is an additional aspect to be considered with regard to innovation projects.
External equity investment can sometimes be particularly disruptive when it comes to costly research and development projects. In the short term, the investor is typically on board regarding the need and nature of innovation projects, but that alignment can slide over time especially should further investment be required.
The directions that are planned regarding both business growth and innovation are all-too-easily derailed with dilutive capital investment solutions.
Problem with Equity Investment #2 - Business Impact
In a near-identical way to that of a business loan, utilising equity investment to fund a costly research and development can cause conflicts with other areas of the business.
Questions such as ‘should this level of capital be allocated to innovative research?’ can be difficult to answer and even harder for the decisions to be justified in favour of ongoing R&D, especially during periods of difficulty in other areas of the company.
Only the pure and immutable allocation of an innovation grant avoids potential conflicts in this way.
Problem with Equity Investment #3 - Exit Strategies
For investors, the exit strategy is an essential part of their business plan. When investing into a business with a clear path towards generating profit, exit strategies are uncomplicated.
Companies with a significant view to long-term innovation prove far harder for any potential investor to realise a return of their investment and may be unappealing as a consequence.
What is Innovation and R&D?
Throughout this article, we have discussed the idea of innovation projects and research and development, but what do these terms really mean in a business and innovation grant context?
- In their UK Innovation Strategy, the government defines innovation as -"The creation and application of new knowledge to improve the world." (Gov.uk, 2024)
Throughout the document, research, development, and innovation are clearly seen to have particular ties to science and technology.
While innovation can exist in terms of a business's engagement with its audience, for example, or in new techniques for improving a physical process, these areas are not specifically those that generate the most support.
No, it is those who are pushing forward scientific boundaries who form the greatest focus for this level of support. Areas that are of particular interest to both the UK government and other grant-awarding bodies are:
- Medical research
- Artificial intelligence
- Environmental impact
- Electronics manufacture
- Software development
- Digital infrastructure
- Data security
Financial Support for UK Innovation Businesses
The financial support for UK businesses developing new products, techniques and services is extensive and isn’t limited to pure cash-injection grants.
Innovation grants can also be seen as an umbrella term for any available support for innovation businesses, even when that doesn’t come with a capital lump sum. Some additional offerings that can constitute innovation grants include:
- Tax credits, such as the R&D Tax Credits scheme
- Free training programs or those with subsidised tuition fees
- Mentorship programs
- Subsidised or free access to dedicated document libraries
- Specialist support, such as business plan writing support or accounting advice
- Organised networking opportunities
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Innovate UK
Innovate UK, part of UK Research and Innovation (UKRI) are the first port of call for businesses looking for innovation grants in the UK. A non-departmental public body, they are funded by a grant-in-aid by the UK government and are the main organisation providing innovation grants for UK businesses.
Other Innovation Grants and Support
Outside of UK government-supported innovation grant schemes, many other funding bodies offer innovation grants and additional support for growing and expanding businesses in the UK.
These include the European Space Agency, Horizon Europe, and the NHS Future Hospitals Initiative among others.
How to Get an Innovation Grant
Grants are limited and are effectively a competitive process. Some innovation grants only have a single awardee and in those cases the need to present yourself in the best possible way is essential.
Grant application is, therefore, a time-consuming process that requires considerable dedication to be successful.
Applications are also limited by a deadline, which typically means that the period leading up to submission is intense. It is always good to get specialist help if it is available to you as a grant specialist will have a strong understanding regarding what is expected from you and your business plan in the application.
UK innovation grants are a niche grant and the criteria for application can be very specific. Among other things, you may be expected to show that:
- Your business is a registered UK company
- The project will benefit UK industries
- Work on research and development will be done in the UK
- Your proposal is original and identifies a specific problem faced by your industry
- Your project will come to fruition within a reasonable time frame (often 12 to 36 months)
Innovation Grant Assistance from Clifton Private Finance
At Clifton Private Finance, we have financial specialists with experience in innovation grant applications. We can help you find the grants that are best suited to fit your innovation project as well as advise on the other options available for you to meet your goals.
As we are part of a network of financial institutions supporting businesses in innovation across the UK, we are here to help with any enquiry regarding business R&D and innovation grants - contact us today.
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