The Covid-19 pandemic has massively increased the number of firms applying for loans and grants as they fight to secure funding to help them weather the storm. Banks report that their staff are working flat out to process the flood of applications.
And there is stiff competition. A recent funding call from Innovate UK for business-led innovation expected to deliver around 400 grants and attracted over 8,000 applicants. Many of these would have been firms applying for funding for the first time, up against seasoned applicants familiar with the process and how to get the best results.
Innovate UK is a prominent funding provider as the government is channelling Covid-19 support schemes for business owners through the agency. A £1.25 billion support package has just been announced to protect firms driving innovation in the UK during the Covid-19 pandemic. The organisation prides itself in operating at arm’s length from the government, existing to provide support and funding purely for research and innovation. Since 2007 it has directly invested around £2.5 billion in UK innovation, and claims to have helped 8,500 organisations create around 70,000 jobs nationwide.
Like most organisations, knowing how to gain its support is an art in itself. Two entrepreneurs familiar with the Innovate UK process gave TechTribe Oxford their advice for hopeful applicants. Mark Evans, chief executive of 3D imaging firm Adaptix, and business advisor Ian Tracey share their experience of preparing for and winning grants.
They explained that entrepreneurs sometimes complain when they fail to win grants without accepting that, just like any sales process, it requires persistence and expertise. Merely complaining about lack of success suggests entrepreneurs may be missing a trick in relation to innovation strategy, and perhaps a lack of tenacity – surely the backbone of every entrepreneur.
To start with the reason for the grant in the first place, Evans and Tracey insist that grants must be tied to strategy. Filling a funding gap may relate to creating or extending competitive advantage in today’s core business, or it may create a strategic option for tomorrow’s revenue stream, particularly if existing revenues have been affected by the consequences of Covid-19, or even created by its effects.
To turn this into action, they say: “Our view is that the output of innovation strategy should be a series of projects, some of them funded by the company. Others, perhaps all in the case of early-stage companies, will be waiting for calls from all grant awarding agencies, not just Innovate UK, or awaiting adequate funding from cash-flow, project-specific funding by customers or equity investors.
Put simply, grant applications should relate to something the company wants to do anyway, and they are a way of accelerating time to market.”
Innovate UK will be used to distribute £750 million of ‘targeted support’ for small and medium-sized companies focused on R&D, announced in April 2020 as part of the government’s billion pound support package for innovation. Perhaps this is the opening salvo of what will be a long recovery, and now is the time to consider what the ‘new-normal’ means for a business, where the opportunities lie and which technologies are needed to realise them.
As Evans and Tracey point out: “Innovate UK (and other funding agencies) have funding and will be releasing it, but may only give two-to-four weeks to submit an application. Opportunity, like chance, ‘favours the prepared mind’, so it pays to develop in advance an idea of the projects to be delivered and begin to build the necessary connections and coalitions to do so.”
In the current situation, funding calls may be aimed at wider audiences, including many non-traditional recipients, which is why the funding landscape has become more competitive and many applicants are new to the process.
Evans and Tracey advise treating the application in the style of a GCSE, and cover every element of every question. Grant applications should be written by commercially minded people able to communicate the value of innovation in simple terms, and not by technical people focused on why their idea is scientifically advanced. Clarity and ease of reading should be prioritised; bullet points are good, but assuming the reader has a New Scientist level of knowledge is probably a mistake.
Most importantly, they advise firms to focus on the scope and don’t waste the words available in each section of the application. Be sure to frame the proposition to the reviewers, to ensure they understand why the project represents a great fit for the objective of the grant call. A well-written application can succeed even when the proposition is technologically weaker. Innovate UK wants to see the project lead to commercial success and will also carefully consider the parts of the submission that relate to that.
When it comes to negotiating loans, including CBILS loans, Ashley Keen, local director at the Oxford branch of Metro Bank, explains that despite an initial surge of applications and the efforts involved with developing processes to deal with the demand, the bank is now in a much better position. Unsurprisingly, like other banks, Metro Bank is prioritising its existing customers.
He reports that almost all customers who have requested capital and interest holidays have received them and that an increasing number of CBILS loans have been drawn down.
Metro Bank is currently testing a new system and awaiting accreditation from the British Business Bank to be a provider of Business Bounce Back Loans, more relevant to the majority of its local customer base. It hopes to provide an update and launch this in the coming weeks.
Keen says that Metro Bank customers looking for loans are encouraged to explore all other available avenues for financial support. In some cases they are not aware of grants that are available to them nor that they can request capital repayment holidays on, for example, HP agreements. Once all options have been explored and the requirement for a loan established, loan applicants are asked to provide the bank with evidence that the business was viable before the Covid-19 pandemic and that when things return to some sort of normality, the business should be able to afford to make repayments once the capital and interest free period expires after twelve months.
These broad criteria are subject to the stance taken by the individual lenders whose risk appetite will be taken into account. Banks and other lenders will therefore take a different position with a business’s application and direct negotiation will be advisable. Inevitably those lenders of last resort, which are prepared to accept higher risks, are likely to charge higher rates of interest. But unlike loans made under the Future Fund, CBILS and Bounce Back loans are underwritten by the government and are not convertible to equity if not repaid.
The British Business Bank has, as at 19 May, disbursed 40,564 CBILS loans totalling £7.25 billion and £14.18 billion of bounce-back loans nationally. Eighty percent of the 464,393 applications for bounce-back loans had been approved, and while there was still a backlog in processing loan applications of both types, the situation was much improved since early April.