Innovation is crucial in the modern era. It enables businesses to keep up with the ever-changing outside world, creating products and services that meet demand and supercharge their sales potential.
It also helps to make processes more efficient – including minimising costs and environmental impact – to benefit your operations.
The term ‘innovation’ refers to many things, including research and development, the invention of new products or processes, or the adoption of technology in your business.
For all the rewards it brings to your business, it comes at a cost, especially if you need to upgrade systems or assets, adjust your infrastructure or invest in development.
While the costs should be seen as an investment in your company, eventually bringing financial wins, you still need to raise the funding in the first instance. In some cases, you will need to secure significant sums.
Below, we have listed the top ways to fund innovation in your business using external sources, including smart grants.
The benefits of innovation
Before focusing on raising finance for innovation, be aware of the benefits of innovation. Doing so will enable you to see why it’s crucial for businesses like yours. We’ve listed the advantages below.
- Address changing customer demand by bringing new products and services to the market to grow sales
- Serve niche markets that cannot access the support they need elsewhere to diversify your audience
- Streamline processes for improved productivity and cost-efficiency
- Upskill your workforce for the digital age
- Improve your existing products and services to boost demand and satisfaction
- Retain a competitive edge over other businesses in the industry
- Become a leader in your industry
- Solve real-life problems, including inequalities and climate change
The exact rewards will depend on the innovation you implement – but if done well, it can revolutionise your results.
What is a smart grant?
Smart grants are part of a programme from the government agency Innovate UK. By providing grant funding, it aims to support SMEs in disrupting existing markets and bringing innovation to the country in exchange for an economic return.
Under the programme, up to £25 million is available for businesses that present game-changing and new ideas that can be successfully commercialised.
Applications are required to be submitted for a chance of securing funding. The programme is open to all, provided:
- The qualifying project involves or is led by at least one SME
- The project meets specific rules, including cost criteria, dependent on the duration of the project
- All work is undertaken in the UK
Applications will then be independently assessed, and you’ll be notified of your status.
It is worth noting that the most recent cohort of grants closed for applications last month. However, it is possible that more funding will become available in the future, as there are regular funding competitions that open.
Other forms of funding for innovation
With smart grants available only to those who meet the programme’s specific criteria and currently closed to applications, many companies will seek an alternative way of securing funding. We’ve listed the most significant.
Other grants
Besides smart grants, other grant funding may be available for your business.
It is ideal if you can secure a grant, as it does not need to be repaid. However, you will typically need to meet specific criteria, making grants harder for most companies to access.
Common routes of grant funding include government schemes, regional grants or programmes from industry bodies. Spend time researching grants, ideally revolving around the theme of your project, to find what’s available and what you must do to be eligible.
R&D tax credits
R&D tax credits are a government reward scheme for businesses that spend time researching and developing innovative ideas, including those utilising new sciences and technologies.
The tax relief equals 33p for every £1 spent on relevant activity. They are usable alongside grants. The only criteria you need to meet is that you have fewer than 500 full-time employees and a revenue of less than €100 million per year.
The average claim in the first year is around £40,000, but some businesses may be able to back-date claims for the previous two years.
While they do not directly fund innovation, R&D tax credits will reduce your tax bill, easing the cash flow pressures associated with investing in technology and research.
Commercial loans
Commercial loans cover a wide variety of purposes, including funding innovation. There are many options on the market, depending on your company’s needs. You generally need to be revenue generating and profitable to be able to access them.
There are two main types, unsecured or secured loans, that are available – secured loans will generally allow you to access larger sums. Both traditional banks and the alternative lending market should be more than able to address your funding needs with a broad range of eligibility criteria available.
Remember to check features such as interest rates, repayment amounts and terms to ensure the loan suits you and is affordable.
Equity funding
Equity funding is another valuable option to cover the cost of innovation, providing you are willing to give up equity in your company.
One of the most significant obstacles in equity funding is finding investors willing to fund you. If you have a compelling proposition you intend to pursue through innovation with a clear financial reward (including disrupting markets, winning sales and making processes cost-effective), it will be more attractive.
Make sure you translate the commercial potential of your innovation (and ideally prove the return on investment your shareholders will receive) into a pitch that wins over investors.
Crowdfunding
Another option to finance innovation is crowdfunding. It is a form of equity finance that involves smaller investors whose funding is pooled through the platform and invested into businesses.
Crowdfunding won’t work for everyone. You need a reason for people to want to part with their money. If you showcase that your use of innovation will benefit your audience – such as addressing a specific issue or serving a niche demand – it will benefit your cause.
You will also need to create a strong campaign and share it widely (usually through social media) to gain traction and meet your funding target. In addition, you need to have raised at least one third of your target in advance of the funding of your business going live on the platform.
Conclusion
Innovation brings significant results for a business, especially if it enables it to improve processes, retain an industry lead or create products and services that maximise its sales potential.
However, it doesn’t come cheap. Investing in the equipment, resources and skill you require to empower innovation has a cost. Many businesses will not have the funding they need in their reserves, making external finance a necessity.
Fortunately, there are routes to raise funding for innovation. From grants and tax credits to equity and crowdfunding, you need to find an option that enables your vision to come true. Then, you can experience the rewards innovation unlocks.
You’ll need funding if you wish to implement innovation into your business. Pegasus Funding has an extensive network of contacts and resources to help secure the funds you need.
Get in touch today to find out how we can help you raise appropriate finance.