UK Fact-File Part 5:
Small Business Incentive Programs

5.1 UK Small Business Support Schemes

Government and municipal incentive programs for small business

Incentives are available for new businesses in the UK, through grants, loans or tax incentives, but such relief generally has to be claimed – it will not be given as a matter of course.

Regional Development Agencies across the UK (with separate agencies for England, Scotland, Wales and Northern Ireland) offered support, grants and other assistance for anyone wishing to start a business in a particular region. The agencies traditionally looked favourably on SMEs wishing to start-up in business in their area, being keen to attract such businesses to locate to their particular region of the UK.

The RDAs received funding from a number of government departments and are coordinated by the Department for Business Innovation & Skills (BIS). Over GBP2bn in funding was available to the RDAs in England in 2009/2010.

However, the new Conservative-Liberal Democrat coalition government announced in June 2010 that the Regional Development Agencies would be dismantled and replaced with Local Enterprise Partnerships (by March 2012 at the latest), which the government has described as joint local authority-business bodies brought forward by local authorities themselves to promote local economic development.

Updated in November 2010 Progress on the on the transition between RDAs and LEPs, and the form that the latter should take is available from the Department for Business, Innovation and Skills (BIS) here.

Grants have traditionally been available from several sources, including the UK government, the European Union, Regional Development Agencies (prior to the aforementioned dismantling of such agencies) and local authorities. Many grants are limited to small and medium-sized companies and those with less than 250 employees.

Funding is also available through the EU Framework Programme for R&D projects, although bids have to be made to the European Commission and the standard of the proposals submitted has to be of the highest calibre. Some grants are available to help prepare a bid for the EU Framework Programme funding.

The Grant for Business Investment (GBI) was aimed at helping businesses through sustainable investment by way of a grant. The grant was available to companies of any size, with the proviso that the investment must be in an Assisted Area. Small and medium-sized companies investing in so-called Tier 3 areas could also receive assistance through this scheme. Recipients of these grants could be any size of company, down to a sole trader. Manufacturing and service industries were eligible, though there are some restrictions in certain sectors, including shipbuilding, steel, coal and fisheries.

The level of grant usually averaged between 10% and 15% of the capital expenditure that meets the criteria for the scheme, though the actual amount granted to a specific project could vary significantly. However, the Coalition government has axed the GBI scheme in England, although grants will continue to be available in Scotland, Northern Ireland and Wales.

The Enterprise Finance Guarantee scheme is designed to boost lending to small businesses which might not otherwise receive such support.

In the former Labour government’s last budget, delivered in March 2010, the creation of a new 'UK Finance for Growth' investment corporation was announced (including a new Growth Capital Fund, which will provide qualifying 'fast growing' companies with private capital, eventually to the tune of around GBP500m overall).

The new Conservative-Liberal Democrat coalition government in July 2010 launched a green paper looking at alternative methods of financing for small businesses, and in November 2010, published its response to the comments received from the public and affected businesses.

It emerged that elements of the former government's plans for business development would be maintained, in particular those concerning growth funds, with a new Business Growth Fund initiative between the government and certain of the UK's banks designed to provide increased access to capital for small businesses, to the tune of GBP1.5bn.

The Enterprise Finance Guarantee scheme will also remain in place until March 31, 2011.

The government also offers tax incentives by way of tax credits or tax relief for companies investing in research and development projects.

Business start-up schemes

In terms of resources for business start-ups, the Business Link portal (www.businesslink.gov.uk), compiled by the government in partnership with various business support organisations, has information to assist new businesses, of any size, to start-up in business. Assistance is available to help write a business plan, raise finance, identify agencies and sources for loans and grants and look at all aspects of a new business start-up.

Cash incentives are sometimes available to business for recruiting younger workers in certain sectors, including adult social care, hospitality, leisure & tourism and retail. The incentive is up to GBP1,000 for each eligible young person recruited.

Support programs for bank lending

The Enterprise Finance Guarantee (EFG) scheme is funded by the government (to March 31, 2011) and will help small businesses by guaranteeing loans, thereby making access to loans and other business finance more readily available.
The guarantee scheme covers new loans (of between three and ten years), existing borrowing, and conversion of overdrafts into loans.

The EFG scheme applies to most small businesses (although there are excluded sectors) with a turnover of less than GBP25m (meaning that, unless they get incredibly lucky, almost all small business start-ups will be eligible), and loans of between GBP1,000 and GBP1m are possible.

A number of banks and other financial lenders have joined up to the scheme; a full list, and further detail on the Enterprise Finance Guarantee can be found here: http://www.businesslink.gov.uk/bdotg/action/gsdDetail?type=GSD&itemId=1081834978 .

In the 2010-11 budget, it was announced that agreements had been reached with state-subsidised banks Royal Bank of Scotland and Lloyds TSB that lending to businesses would be increased over the coming year, with a minimum of half of the GBP94bn agreed going to benefit SMEs.