Small firms have been turning to business grants as a secondary source of "free" money while bank funding remains hard to find. Specialist grants database GRANTfinder says enquiries from small businesses about how to secure grant funding have risen by a third in the past year.

The first challenge is working out what is on offer and where the firms are most likely to be successful. The European Union offers an array of grants, as do the government, local and regional agencies and authorities. There are also many specialist grant providers, particularly for green projects. Government-funded Business Link provides advice, while many local papers publicise details of funds available.

Firms should focus on the desired outcome when applying for example creating or retaining jobs, or improving local amenities. Some funders will want to visit your organisation and speak to staff.

Another option is to use a specialist grants consultancy service. According to Chris Smith, joint managing director of Fuel technology company G-Volution, based in Bath, Somerset, the company used PNO Consultants of Wilmslow, Cheshire to help it find relevant grants. The £1m turnover firm, which employs 10 people and won a £40,000 Shell Springboard Award in 2008, last year secured £70,000-worth of funding through the Carbon Trust.

The past couple of years have been difficult for businesses, so if there is money available and people are willing to help, then it makes sense to make use of it. But there is a real skill to applying. Some of the language can be hard to interpret.

And small firms often fail to recognise that grants rarely provide 100% of the funding.

Firms that don’t stick to the reporting requirements laid down by the grants body risk losing out on claiming the full grant available.