Sweating the system

11 July, 2008
Feeling squeezed between rising costs and tight margins? Maybe it's time to give the system a squeeze back. Paul Gander finds out what grants and other support are available
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For some, looking for government support - whether in grants, tax incentives or simply advice and training opportunities - has something of a stigma about it. That is, until they see who else is already benefiting from this type of support.
For those in the know, it is a sign that a business can look after itself, rather than the opposite. Too often, it is larger companies that have the resources to research and administer these opportunities. But then they are likely to derive proportionately less benefit from them than their smaller competitors. In these tougher economic times, businesses of all types and sizes should familiarise themselves with the options.The past few years have seen large numbers of food and drink businesses benefit from European Regional and Development Fund (ERDF) finance under the Objective One programme. This applied to EU regions where deprivation was considered particularly high and, in many cases, it supported expansion and investment in new equipment. But with new finance under Objective One no longer available, is it time to bid Adieu to European funding?Far from it. Where there was an Objective One, Objective Two is sure to follow. This new EU treasure chest was opened in 2007, and the programme is due to run to 2013. It applies to the English regions, with other parts of the UK running their own programmes (see ERDF website). Anona Vazquez-Masson, head of ERDF programmes at the Department for Communities and Local Government, explains: "The focus is on competitiveness and employment, administered through the Regional Development Agencies (RDAs) rather than government offices. The approach taken by each of the RDAs is very different, with some looking at fewer, bigger projects."This should not deter smaller business, she says, since many of these umbrella projects combine different elements, and targeted business support for SMEs is central to programme objectives. This could include training in business skills (although training is also catered for in the European Social Fund, she points out), communications, marketing and R&D. What are called the 'Lisbon priorities' mean that at least 75% of resources are aimed at promoting competitiveness and creating jobs.So, for instance, for Yorkshire, key phrases in the current programme are "sustainable knowledge economy", "innovation and technology transfer" and "dynamism and entrepreneurship". One of the priority areas, supporting and stimulating successful enterprise, aims to remove barriers for start-ups and boost the number of SMEs.Nor do EU-funded (or co-funded) options stop there. Selective Finance for Investment in England (SFIE) is a completely separate fund, this time distributed unevenly around the various RDAs by the Department for Business, Enterprise and Regulatory Reform (DBERR). Here, the minimum grant is £10,000 and there is no maximum. Support can range from 7.5% of capital expenditure to 50%. Not only does implementation of the fund vary from region to region, but within regions, eligibility can also be something of a "postcode lottery", says Warwick-based broker Bell Finance.One happy (and initially surprised) recipient of an SFIE grant was Lewis's Bakery in Birmingham. MD Simon Lewis explains that he originally approached Bell for asset finance. "I had equipment I wanted to buy, and they suggested looking at obtaining a grant," he says. "We approached the Advantage West Midlands RDA, and Bell Finance drew up a business plan." This included profit and loss forecasts.Adrian Thompson, grants advisor at Bell, comments: "All of this can be a daunting process for the client. There's also a 24-page application form, so by the time you've finished, it's a box file." He adds: "Most of our clients need us simply to provide communication services between them and the civil servants who monitor the schemes."Costly processApplying for a grant is no guarantee of receiving one, however, and application procedures can be lengthy and costly. One form of insurance here is to carry out a more streamlined pre-application. Thompson says: "In some cases the RDA insists on a pre-application, but we put one together in any case as a matter of course."Eligibility criteria vary from region to region. "Some RDAs have target areas, such as high-tech industries," he says. "You need to be able to demonstrate that yours is a sector that has suffered because of external factors. Any planned expansion needs to be about new people being employed, not the existing workforce being displaced, otherwise this is classed as 'unfair competition'." And overall, the non-competitive nature of the venture is of paramount importance. "Unless it is a unique offering, the case collapses."In the case of Lewis's, the application resulted in a grant of £46,000 in two tranches, as part of a £256,000 project. The "uniqueness" and "non-competitive" criteria were met by the fact that the business was planning to diversify into more artisanal and European-style stone-baked breads, such as focaccias and ciabattas. "We worked out that the nearest competitor was at least 50 miles away," says Lewis. "They also liked the fact that it was value-added, with healthier margins."While brokers will typically charge fees and 10% or so of any funding they successfully bid for, free advice is available through the Business Link network. This is organised regionally and, once again, opportunities will vary depending on location. In some cases, a Resource Efficiency Diagnostic can set the ball rolling by identifying areas for improvement. Business Link can also advise on funding such as SFIE, and has close relationships with the Manufacturing Advisory Service, Train to Gain and UK Trade & Investment. It is certainly worth having an open-ended conversation with your local Business Link.Energy efficiency loanThese days, energy efficiency is an economic, as well as an environmental, imperative for the bakery business. But the Carbon Trust can offer even greater incentives. One option is an energy efficiency loan, only available to SMEs with under 250 employees. Here, energy bills are not a criterion for eligibility, but the focus is on replacing or upgrading existing equipment with more energy- efficient alternatives. Enhanced Capital Allowances (ECAs) are also available to companies applying for loans. As part of this scheme, the Trust manages the Energy Technology List (ETL) of energy-saving equipment, and products claimed for under the ECA scheme must be on the List. Businesses can claim 100% first-year capital allowances on these technologies. The Trust cites the example of a company paying 30% corporation tax. Every £1,000 spent on equipment from the ETL would reduce its tax in that year by £300. This contrasts with the generally available capital allowance of £75 for plant and machinery.With its focus on packaging and food waste, the Defra-funded Waste & Resources Action Programme (WRAP) offers other opportunities. As well as advice on sustainability issues, WRAP publishes tenders for part-funded projects. Tenders are published on the WRAP website, and remain open for seven weeks from the date of publication, says retail programme manager Mike Robey. In June, tenders were due to be published inviting proposals for projects in two areas. The first of these relates to the way product is sold in-store. "We want to look at innovative ways of merchandising premium products without the need for additional layers of packaging," says Robey. The second is aimed at the development of reusable packaging systems. "Often, smaller companies are the most innovative," explains Robey. "But we need to ensure that there is a route to wider take-up. We're particularly keen to see joint proposals from companies with similar issues or from different parts of the supply chain."Useful contacts[http://www.erdf.communities.gov.uk][http://www.carbontrust.co.uk][http://www.wrap.org.uk/wrap_corporate/tenders][http://www.berr.gov.uk/regional/][http://www.businesslink.gov.uk]----=== Scotland and Wales ===Scotland is helping to support its SMEs with the Small Business Bonus Scheme, launched in April this year. This will save companies up to £75m in business rates in the first year, says the Scottish Government, and up to £165m once full discounts come into force.Some 150,000 businesses are eligible, but they need to apply to join the scheme. At the launch, it was estimated that a shop with a rateable value of £5,150 would save £1,200 in the current year and potentially £1,650 in 2009.When it comes to EU funding, the Welsh Assembly Government (WAG) and Scottish Government (www.scotland.gov.uk/Topics/Business-Industry) administer their shares separately. WAG says it has simplified its system (or at least access to it), via a single website, [http://www.business-support-wales.gov.uk].

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