SME Funding Crisis - Part 3: The Grant Mirage: Why Public Funding Offers False Hope

Government and institutional grants are often touted as a lifeline for growing startups and SMEs unable to secure loans or investment. The reality is far less encouraging. With rejection rates around 90%, grant funding represents more mirage than oasis for desperate businesses seeking funding.

The main provider of innovation grants – Innovate UK – has been in turmoil for over 2 years. The number of grants available has halved. The Smart grant was suspended in 2025 and outrage arose over the Women in Innovation programme’s failure to deliver on its funding promises. Not surprisingly, a new Chair was appointed in July 2025 to come up with a new strategy. However, this is still awaited, the latest news being that it should be published by April. Why on earth is it taking so long?

The fundamental problem is one of supply and demand and most business owners go into the process of applying, blind of what it actually entails. Total available grant funding is dwarfed by the volume of applications. Competitions are routinely oversubscribed by factors of ten or twenty to one. Even excellent applications with strong business cases face rejection simply because funds run out. It's a lottery where the odds of winning are worse than most actual lotteries and grant application and assessment processes need a major overhaul. Some reasons why are outlined below:

Inadequate Screening Most grant providers don't have an automated screening process to pre-emptively "weed out" applicants that don't meet the eligibility / scope criteria, before they apply.

Vague Eligibility Criteria

Most grant providers don't clearly state the eligibility and scope criteria on their website and some change their priorities after applications have been submitted.

Criteria varies from funder to funder and from competition to competition. Many grants target specific sectors, regions, or business types. Innovation grants require R&D activities. Regional development grants demand operations in designated areas. Export grants necessitate international trade activities.

While these criteria serve legitimate policy objectives, they exclude vast swathes of SMEs with valid funding needs. A profitable services business seeking working capital to expand domestically may find virtually no grants available to it, regardless of its contribution to local employment and economic activity.

Inefficient Assessment Processes

Many applicants with great ideas are losing out to others purely because they lack insight into how to best present their case to assessors. A large majority of business owners write their own applications, possibly 70% to 90%.

Applying is time-consuming and costly. It requires significant resources and effort to build an application and pull all the information required together - typically 6-12 weeks.

Standardisation is woefully, lacking. Apart from a few collaborative funders, most grant providers have a different application process, with different information requested and differing terms. Invariably, there are many questions with word limits to be answered, forms and financial spreadsheets to be completed as well as an extensive narrative and detailed appendices and documentation, submitted.

Another challenge is that assessment relies on human judgment which is prone to errors, inconsistencies, and biases. Individual assessors personal knowledge and experience varies, widely. There is a shortage of experienced assessors and this can lead to inconsistent or unfair decisions with there not being any right of appeal.

Tight Application Windows

There is little notice of a new grant competition opening and most grants have a window of only 1-2 months. Given the time it takes to write an application particularly for large grants, this window is too tight for most businesses so they don’t apply.

Match funding needed Many grant providers require match funding rather than provide full financing. For example, Innovate UK usually requires 30% match funding which most startups cannot afford.

Slow Approval Process Circa 6-9 months after the application closing date is normal for grants. It takes 3 months or so after the closing date, before an applicant knows if they are successful. And 6 months before they receive monies because of due diligence etc.

Lack of Transparency

Grant funders sometimes reject applications for arbitrary reasons, such as the order received or a cut-off number not transparently established. A grant application could also be incredibly well written, but not a project the funder is interested in, or the funder’s board is only funding specific kinds of projects not transparently stated on the funder’s website.

Lack of Feedback

Feedback varies - from none to some and invariably, unusable. Giving constructive feedback to every rejection can easily amount to increasing the cost to funders of at least an additional FTE.

Grant payments made in arrears Succesful applicants incur project costs upfront and receive reimbursement months later, creating cash flow challenges that many cannot absorb. The administrative burden of compliance, reporting, and auditing adds further costs that eat into the grant's value.

Lack of Published Failure Rates

It is generally understood that around 90% applications, fail but I've been unable to obtain meaningful statistics. Related to this , I've contacted around 30 grant providers and only one was willing to advise the failure rate. The best a business owner thinking of applying for a grant can therefore do is to try and contact funders one by one but this is time-consuming. Submitting a FOI to e.g. Innovate UK is even more time-consuming.

Funders slow to implement technology such as AI

Most are reluctant to use AI in the application and assessment process. Regulatory compliance also holds grant providers back as do the risks or uncertainties involved in turning to technologies which may appear unproven.

No qualifications or code of conduct required for grant writers

Whilst there are ethical guidelines and codes of conduct that apply to grant providers in the UK, these codes do not apply to grant writers. Conversely, in the USA, professional organisations, such as the American Grant Writers' Association, have established qualifications and codes of ethics that members are expected to follow.

In the UK, there is no equivalent association and anyone can set up business as a grant writer (no qualifications required). This includes self-employed writers and grant writing firms. Consequently, the quality of writing varies significantly. Less experienced or lower-quality grant writers may have a higher failure rate due to weaker writing, poor alignment with funder guidelines, or failure to present the project in the best light.

Grant Writers success rates not published Most business owners have no experience in applying for grants and those without experience find the process, daunting. Some out of desperation, decide to pay £000s to so-called, professional grant writers in the hope of gaining significant advantage. The outcome? Most still don’t receive a grant so it's no surprise that most grant writing firms don't publish their success rates. (The cost can be £6000 or more + success fees per application without any guarantee of success).

Most writers won't turn away SMEs they believe have limited chances of success because they rely on fees for their income. In this context, there is no obligation on grant writers to publish their success rates. Research indicates that some advertise that they have a circa 50-70% success rate with 20 -30% being more the norm.

The best a business owner can therefore do is to try and establish what a grant writer’s track record is but they would have to look at many different provider’s websites to get an idea of what businesses were successful and at what amount. This process is time-consuming and even if a business can reach out to each writer, the chance of receiving a clear response on the success rate is slim.

Conclusion: Most startups/SMEs do not apply and who can blame them. With only around 10% of applications receiving funding, the collective time spent writing applications is not worth it given there are so many other essential activities a business owner needs to do.

Next: The Investment Desert: Why VCs and Angels Are Failing SMEs