“Grants are for corporates” The Myth That Nearly Cost a Founder Everything
When I first met Emma, she ran a fast-growing manufacturing business in the Midlands. Turnover just over £4 million, great pipeline, clever team, no full-time finance director.
She had invested heavily in a new software platform to link her factory data to customers’ systems. It was clever work. Her engineers were solving problems that nobody had cracked before.
When I asked whether she had ever looked at grants or R&D incentives, she waved the idea away.
“Grants are for universities and big corporates. SMEs like us do not stand a chance. I do not have time to fill in forms for a 2 per cent success rate.”
Six months later, after a structured review, Emma’s company had secured a substantial Innovate UK grant at 70 per cent intervention for an industrial research project, plus a material R&D tax relief claim on the wider development programme. The grant de-risked the next phase of innovation. The R&D claim improved cash flow and helped fund extra staff.
The only thing that had changed was her understanding of the landscape and her decision to get expert help.
Emma’s experience is far from unusual. Many SMEs underestimate their eligibility simply because the system appears complex or geared towards larger organisations.
This article is written to help founders like Emma see what is available and how to approach it in a practical, commercial way.
The UK grant and innovation landscape in plain English
The UK has a surprisingly rich ecosystem of grant and innovation support. The challenge for most SMEs is not that nothing is available, but that it is fragmented and time-consuming to navigate.
You can think of it in terms of four main layers:
1. National innovation grants
These are the big national programmes, typically funded through Innovate UK (part of UK Research and Innovation). They support projects in areas such as:
Advanced manufacturing
Clean energy and net zero
Digital and AI
Health and life sciences
Transport, mobility and battery technology
Calls are usually competitive. For many schemes, small businesses can receive up to around 70 per cent of eligible project costs for feasibility or industrial research, and lower rates, such as 45 per cent, for experimental development that is nearer to market.
Historically, Innovate UK Smart Grants acted as a broad, “any sector” programme, although this has been under review due to high demand and low success rates.
Success rates vary considerably. Some open calls are highly oversubscribed, while sector-focused calls aligned to specific themes offer materially higher chances for well-prepared SME applicants.
2. Sector and technology specific programmes
Alongside the general calls, there are specialist schemes that focus on particular industries or technologies, for example:
Aerospace, through programmes linked to the Aerospace Technology Institute
Automotive and battery technology, such as the Advanced Propulsion Centre and related calls
Biomedical Catalyst for health and life sciences projects
These calls often have clearer themes, which can improve your chances if you are working in those areas.
3. Regional and local schemes
Devolved administrations, combined authorities and local bodies also run grant schemes, often focused on:
Capital investment in plant and equipment
Skills and digital adoption
Low-carbon upgrades and energy efficiency
Award sizes are usually smaller than national programmes but can be easier to access and may be better aligned to practical projects such as a factory upgrade or digital transformation.
4. Contracts for innovation
Not all support arrives as a traditional grant. Some public bodies issue “contracts for innovation” where they essentially buy a solution to a defined problem. Defence and security innovation calls are a good example. You still undertake R&D, but you are paid under contract rather than receiving a classic grant.
For SMEs, these contracts can be attractive because they validate the market as well as funding the work.
How innovation grants work in practice
Although each scheme has its own rules, there are common building blocks.
1. Eligibility
At a high level, you usually need:
A UK company that will carry out the project and exploit the results
An innovation project that addresses a genuine technical or market challenge
The ability to fund your share of the costs (“match funding”)
Sufficient financial strength that the funder is comfortable you can deliver
Some calls require a consortium of partners, for example an SME with a university and a larger industry partner. Others are single applicant.
2. Typical project themes
Funders like to support projects that:
Move the state of the art forward, not just implement existing technology
Create economic impact in the UK, such as jobs, exports or productivity gains
Contribute to policy goals such as net zero, health improvement or security
A project to roll out an off-the-shelf software package will usually not qualify. A project to develop a new algorithm, manufacturing process or platform that others do not yet offer may well qualify.
3. Match funding expectations
Grant rates are expressed as a percentage of eligible project costs. For example, a small business might receive 70 per cent funding for an industrial research project.
That means:
Project cost: £500,000
Grant at 70 per cent: £350,000
Company contribution (match funding): £150,000
You must be able to show where your £150,000 will come from. This may be cash reserves, loans, equity or a mix.
4. Eligible costs
Although the detail varies, most UK innovation grants cover similar cost categories:
Labour: salaries of staff working on the project, usually on a time-recorded basis.
Subcontractors: specialist external work such as testing, design or academic input.
Materials and consumables used in experiments and prototypes.
Travel directly linked to the project.
Overheads: either a flat percentage or a calculated share of your business overheads.
Capital depreciation: in some schemes you can include a portion of equipment costs, reflecting the depreciation during the project.
Pure commercial costs such as sales, marketing or general management are normally excluded.
5. Timelines and cash flow profile
This is where many SMEs get a shock. Grants are almost always paid in arrears, typically quarterly.
Because claims require verification and can be audited, SMEs must plan for a significant pre-funding requirement even with high intervention rates.
While specialist innovation lenders can bridge these gaps, they carry costs and should be assessed alongside downside scenarios. These facilities work best as part of a planned funding structure, not a reactive fix.
A typical Innovate UK style project might look like this:
Contract awarded, then a mobilisation period to get paperwork in place.
Project starts. You spend your own cash each month.
You submit a claim each quarter with supporting records.
The claim is checked, occasionally audited, then paid perhaps one to two months later.
On a £500,000 project with a 70 per cent grant, your peak cash requirement can still be significant, because you have to pre-fund several months of spend before the first grant payment arrives. Specialist innovation lenders can provide advance funding against expected grant payments to smooth this curve, but that needs careful modelling.
Common pitfalls and practical tips
1. Scope misfit
Submitting a project that does not really fit the call is one of the quickest routes to rejection. Funders publish detailed scope documents. If you are stretching to make your project fit, it probably does not.
Tip: Treat the scope as a checklist. If you cannot clearly show how you meet each point, look for a better aligned call instead.
2. Underestimating match funding
Winning a grant but then struggling to fund your contribution is almost worse than not winning. It can strain cash flow, distract management and damage credibility.
Tip: Build a detailed cash flow forecast for the whole project, including match funding, VAT, and the timing of grant receipts. Check the impact on your existing business as well as the project. Check out sources of innovation funding e.g. Sprk Capital
3. Weak consortiums
In collaborative calls, the assessors look at the strength of the consortium. A last-minute partnership with little track record together can raise questions.
Tip: Start partner discussions early. Be clear who does what, who owns what, and how the results will be exploited.
4. Poor project planning
A vague plan such as “Year 1: R&D, Year 2: testing, Year 3: launch” will not score well.
Tip: Break the work into clear work packages with objectives, tasks, milestones and responsibilities. Funders want to see that you can manage risk and deliver. Organisations like TBAT might be able to help.
5. Underestimating the admin
Grant management involves progress reports, financial claims, time recording and sometimes audits. Many SMEs underestimate this burden.
Tip: Factor in internal time or external support to manage the administration. Build simple processes from day one rather than trying to tidy up later.
Practical next steps
If your business is investing in R&D, digital transformation or new products and you suspect you may be leaving money on the table, now is the time to act.
Experius Consulting can help you:
Understand which grants and incentives are realistic for you
Design a joined-up strategy that combines grants, R&D relief, Patent Box and commercial funding
Manage the numbers so that innovation strengthens your cash position rather than straining it
If you would like a confidential, no-obligation conversation about your innovation roadmap and funding options, get in touch and we will explore what is possible.