There is no shortage of government money available for start-ups, but many businesses simply do not come close to accessing it.
The major Australian Federal Government departments invest approximately $3.5 billion dollars in grants. The States also invest in business grants programs.
Much of this grant money is targetted at SMEs and start-ups, who find it difficult to raise cash from other traditional sources.
The grants, which can provide 50-80% of the cash required for a business initiative, are typically designed to top up funding requirements.
Given the value of grant money available it begs the question, “Why aren’t more SMEs tapping into government grants?”
It is possible many business owners aren’t aware of the grants available or think they may be too hard to apply for. This isn’t necessarily the case and when you consider some of the benefits they provide, it may be worth the effort.
There are many grants available for various uses and the conditions associated with using the funds are often more palatable to SME owners than standard investment.
You don’t have to relinquish any control, ownership or equity when receiving a grant and you don’t typically have to guarantee specific financial returns on investment. Also, in most cases, you don’t have to repay the grant or pay interest on it.
There are grants available to support starting a business, development or commercialisation, improved productivity and competiveness, innovation, pursuing export markets, introducing new products and services, as well as grants based on industry or geographic location.
There are awards for a future investment, such as the grants Commercialisation Australia provides. These grants assist researchers, entrepreneurs and innovative companies turn intellectual property into successful commercial ventures.
Their grants include up to $50,000 for specialist advice to build the skills, knowledge and connections to commercialise intellectual property; between $50,000-250,000 to test the commercial viability of a new product, process or service; repayable grants between $250,000 and $2 million for early commercialisation activities; and up to $200,000 over two years to assist with the recruitment of a CEO or other executive.
Another example is the City of Melbourne grants that provide up to $30,000 to support costs yet to be incurred by businesses established or being set up in Melbourne.
There are also retrospective grants where you apply to recoup expenses already incurred. One such grant that we assist many clients to obtain is the Export Market Development Grant, where you claim up to 50% of export promotional activity expenditure.
These grants administered by AusTrade, are available to businesses with annual income of less than $50 million and range from $5,000 to $200,000 annually.
Another source of cash worth investigating are tax incentives such as the R&D Tax Concession, which enables companies to deduct up to 125% of expenditure incurred on R&D activities from assessable income and for small businesses claim a cash rebate for the expenditure incurred.
Grants do have their downside, though. Most have formal reporting requirements and some are subject to audits.
Depending on the economy, government in power and their policy, grants can also be short lived, so can’t be relied upon as a long-term source of funding.
Businesses can also fall into the trap of allowing the temptation of easy money to direct their business strategy.
This can be dangerous, particularly if market changes or new innovations mean that the investment that grant money is used for won’t continue to support the competitive needs of the business.
This makes it important to stay focused on your business objectives and treat grants as a supporting tool to these initiatives.
There are advisors that are able to help you maintain this focus and do the hard work for you by finding the grants that are applicable to your needs. Some even help with completing the application or compiling the supporting information required.
Becoming aware of the grants available and identifying any that suit your current and future needs, is a simple and inexpensive first step you can take.
If you do find any you’d like to apply for, you may find our Tips for successful grant funding on our website helpful, or StartupSmart’s run-down of the leading government grants.
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides business advisory services as well as tax, outsourced accounting, grants support and financial services to fast growing small to medium enterprises.