Match Funding Explained: Why Grants Don't Cover 100% of Costs

Our experts explain why "match funding" is a key component of business grants and share smart ways to secure your side of the funds.

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Megan Williams
June 10, 2024
Business Grants Mythbusted: Answers to All Your Burning Questions

Business grants – not 100% “free” cash, but still pretty great

Grants don't cover 100% of costs – here's what you need to know

Unlike venture capital, angel investing or corporate loans, grants give your business a cash injection without asking for equity or the money back at a later date. However, business grants aren’t “free money.” 

Most grant funders require you to have skin in the game by funding part of the project yourself.

This is called “match funding.” If your grant submission is successful, they cover a sizeable portion of total project costs, and you contribute the rest.

The percentage the funder provides, which varies by organisation and grant, is called the “intervention rate.” 

Your contribution is the “Great… now how can we rustle up the other 100 grand?!” rate. 

(Hopefully not, but we’ll get to that later.)

Why is match funding necessary?

At first glance, match funding might seem like a fly in the ointment. But it serves several important functions.

  • Right message: Aligned risk/investment makes all parties financially and emotionally invested.
  • Right business value: Pushes you to build a streamlined plan managing both funding parts.
  • Right motivation: Nudges you to continuously validate market potential, ensuring wider impact.
  • Right diligence: With your own finances partly invested, your due diligence will be far greater.
  • Right balance: Match funding allows limited grant funds to assist more good ideas and ventures.
  • Right rewards: Incentivises you to deliver maximum outcomes and minimise delays and cost blowouts.

Far from being no-strings-attached prizes, innovation grants are more akin to mutually aligned financial partnerships.

However, unlike securing investment from an individual or private firm, these funding collaborations don't require signing over an equity stake in your company. The public funder receives no claim to future profits or control.

Their "return on investment" comes indirectly through the economic growth and activity your success generates – from job creation to environmental benefits to elevating British research and technology on the global stage.

What makes my business eligible for grant funding?

First, it’s worth noting that public grants aren’t a viable option if your business is in financial difficulty. (Funders do financial viability checks to ensure you’re suitable for public funding.)

Funders like to see that you’ve tried other routes before considering public funds, such as bank loans, equity investment and crowdfunding. Seeking a grant should be your last, best option.

In your grant submission, you’ll need to explain which alternative funding routes you’ve explored and why they weren’t a good fit for financing the entire project. 

Critically, your explanation shouldn’t shake the assessors’ confidence in your project. Rather, it should give reasonable reasons why other funding options aren’t suitable right now.

We can help you perfectly explain your financial situation to grant assessors.
Our experience and AI-powered platform have helped hundreds of businesses secure transformative amounts of grant funding (over £125M and counting).

See if we can help you by taking a quick questionnaire.

How can I fund the remaining balance?

The most appropriate way to part-fund your innovation project depends on your idea, your business status (e.g., are you already trading and making a profit?), and how you plan to go to market and monetise your product or service.

Importantly, you must show during the grant application process that you’ll be able to fund your side of the project costs if your submission is successful.

Here are some funding methods with tech-focused examples.

Director’s loan

The founder and CEO of a FinTech app startup takes out a £50K personal loan for match funding, which the business will repay through future subscription revenue.

Bootstrapped investment

The creators of an AI platform self-fund the match costs from their own savings plus freelance income to retain complete control.

Prior equity investment

An angel investor in a biotech startup contributed £50K to the business prior to it seeking public funding for its new project.

Cash reserves

A healthtech wearables company allocates existing cash reserves from its smartwatch sales over the past two years towards meeting match funding requirements.

Pre-order sales

Five hundred pre-order sales secured for a new genomic analysis device cover the match funding component required to prototype and test it.

Sales of other products/services

An insurtech company directs revenue from its insurance audit software suite into match funding development of a new blockchain fraud detection tool.

Equity investment (on condition of a successful grant application)

An IoT-focused VC firm offers a sensor tech company funding if it wins the innovation grant.

Director salaries and overheads

If you don't have the reserves to cover your side of the costs, you could consider reallocating the grant money itself from director salaries and overheads to cover it.

Artist’s impression. May not accurately reflect the nature and duration of the grant application process or assessors’ typical attire.

How much of my project will Innovate UK fund?

Every grant has its own intervention rate based on your business size and project type. 

Let’s look at Innovate UK’s Smart Grant, which is investing up to £25 million in ambitious, disruptive research and development (R&D) projects with a high potential for commercial success. 

Projects lasting 6 to 18 months should have total costs ranging from £100,000 to £500,000 and can be either individual or collaborative. For longer projects of 19 to 24 months, the total costs must fall between £100,000 and £1 million, and these projects must be collaborative.

Early feasibility studies to explore an idea’s potential, including concept validation and conducting market research.
Micro or small - up to 70%
Medium - up to 60%
Large - up to 50%
Industrial research typically aimed at building the core technology to produce at least one prototype.
Micro or small - up to 70%
Medium - up to 60%
Large - up to 50%
Experimental development where you're developing established products or technology (e.g., from a prototype), including testing and piloting.
Micro or small - up to 45%
Medium - up to 35%
Large - up to 25%

So, let’s say you’re a small business wanting a grant to fund industrial research that will develop a prototype. Your project will take 12 months and cost £200,000. Here’s an example of how you might fund it.

Funding method
Contribution
Amount
Innovate UK Smart Grant
70%
£140,000
Self-funded (match funding)
30%
£60,000
Cash reserves
(15%)
(£30,000)
Pre-order sales
(12.5%)
(£25,000)
Equity investor
(2.5%)
(£5,000)
Total
£200,000
There’s a lot more to business grant eligibility than match funding.
We can confidently tell you if your business is a good fit for a public grant with a quick questionnaire.

That way, you won’t waste your time applying for financial support you’re ineligible for or miss out on vital funds that could transform your idea into reality.
Let's make sure you're eligible then have a chat!
Take our free 90-second eligibility quiz

Our experienced team and AI-powered platform have helped thousands of businesses craft compelling, best-practice grant applications in a hyper-competitive arena.

In fact, in a recent round of government funding, 64% of all winners were produced by the Grantify platform. And they submitted their grant applications 7X faster than if they’d applied solo. 

Check out some of the thousands of business owners we’ve helped get the financial backing they need.

Our experts explain why "match funding" is a key component of business grants and share smart ways to secure your side of the funds.

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