Are Grants Enough? When SMEs Should Add Non-Dilutive Loans to the Mix

Many UK SMEs use grants to fund early-stage innovation. Grants protect equity and support technical risk, and they can also demonstrate credibility with customers and investors. However, they can also leave gaps between when SMEs pay staff and suppliers and when grant cash arrives.

Non-dilutive loans give SMEs another way to fund delivery without issuing new shares. When SMEs use these loans alongside grants, they can keep projects moving, maintain teams and reduce delays linked to claim and payment cycles.

In this guide we explain when grants alone may limit an SME’s progress and how to decide whether to add non-dilutive loans to the funding plan.

Are Grants Enough on Their Own for Growing SMEs?

Many SMEs rely on grants because they reduce early financial pressure and help validate technical plans. As companies progress, the limits become clearer. Grant cycles move slowly, payments arrive after claims, and awards often cover only part of project costs. These timing gaps affect hiring and supplier commitments and can slow overall delivery. Even SMEs working with their first significant grant can face these pressures once project costs start to ramp up.

When Should SMEs Combine Grants and Non-Dilutive Loans?

There is no single trigger point. Instead, a few practical signals show when grants alone start to constrain delivery. The scenarios below show where non-dilutive loans can support delivery and growth while grants remain part of the funding plan.

What if you have a grant but lack upfront cash to start delivery?

Many grant schemes pay in arrears and use claim cycles to release funds. In practice, SMEs need to commit to payroll, materials and supplier contracts before they submit the first claim.

If the company does not hold enough working capital to make those commitments, the project can start later than planned or move forward in smaller steps than the original scope assumed.

Here, a non-dilutive loan linked to the grant can bring the timing of payments to staff and suppliers closer to the timing of grant income. For example, grant advance funding or an innovation loan can provide part of the project budget upfront, and the approved grant secures the facility. The SME can then hire the team and place orders according to the technical plan rather than the claims timetable.

What if your R&D programme depends on tax credits that arrive too late?

Some SMEs run ongoing R&D programmes where R&D tax credits form a material part of expected cash inflow. The work continues each month, but tax credit payments arrive after the financial year-end and after HMRC has processed the claim.

If R&D costs rise faster than other income, this timing gap can put pressure on cash balances, even if the underlying claim is strong. Management may respond by slowing hiring, reducing external work or pacing experiments to match available cash rather than the technical opportunity.

In this case, non-dilutive loans that draw on expected R&D tax credits can help. An R&D tax credit loan brings forward part of the anticipated credit so that teams can continue work at the planned pace. When HMRC pays the claim, the company repays the facility from that inflow.

How can you scale beyond what the grant covers?

Grant briefs often define specific work packages and reporting lines. As projects progress, SMEs may identify adjacent features and new use cases that sit outside the written scope, including early commercial pilots.

If management waits for a new grant call to cover these extensions, the company may keep product and market work on hold. Equity funding is one option, but it may not fit the size or timing of the opportunity.

Here, non-dilutive loans linked to innovation work can help fund related development and commercial activity that sits outside the grant brief. Innovation term loans can support this work alongside grant-funded tasks. The SME can move into pilots, customer trials or integration work while it continues to claim under the existing grant.

What if work slows or pauses between grant calls?

Some SMEs build their funding plan around grant competitions, whether they are applying for a first award or managing a sequence of projects. This can work in the early stages but may lead to periods where teams slow down or pause work while they wait for competition results or new calls to open.

Repeated pauses in work can affect staff retention, delivery quality and customer confidence. They may also make it harder to plan longer-term work because each new phase depends on a separate grant decision.

Non-dilutive loans can reduce these delays. Where a company has a history of grant success or regular R&D tax credit claims, facilities such as grant advance funding or R&D tax credit loans can provide a more continuous source of project funding. The SME can then plan programmes over a longer horizon, using grants as part of the overall funding plan rather than as the sole source of external support.

How Does SPRK Support SMEs Using Grants and Non-Dilutive Loans?

SPRK works with UK SMEs that carry out innovation and rely on R&D tax credits or grants as part of their funding. SPRK designs its facilities to align cash inflows from these schemes with the timing of project costs.

• R&D Tax Credit Loans: R&D tax credit loans can bring forward part of an expected R&D tax credit so that SMEs can fund ongoing development. The R&D Eligibility Checker helps teams assess whether their work qualifies before they consider this type of facility.
• Grant Advance Funding and Innovation Grant Loans: Innovation grant loans and grant advance funding can support project costs between grant milestones. Tools such as the Grant Eligibility Checker and guidance on open innovation grant programmes help SMEs identify relevant opportunities.
• Innovation Term Loans: Innovation term loans can fund development and commercial activity that sits alongside grant-funded work. This gives SMEs a way to extend programmes without returning to equity funding for each new phase.

SMEs can combine these non-dilutive loans with existing grants to build a funding plan that supports delivery and reduces timing gaps while preserving ownership.

Combine Grants and Non-Dilutive Loans for Timing and Scale

Grants remain a valuable part of funding for SME innovation. They help companies take technical risk and demonstrate quality without affecting equity. However, grant cycles and payment schedules do not always match the pace of project delivery.

Non-dilutive loans give SMEs another way to fund work that depends on R&D tax credits or grants, or to extend programmes beyond a specific brief. By reviewing how much of the funding plan relies on these schemes and where timing gaps appear, management teams can decide when to include non-dilutive loans in the funding plan.

If you want to discuss how non-dilutive loans such as R&D tax credit loans, grant advance funding or innovation term loans could support your projects, you can speak with the team via SPRK’s contact page.

This article provides general information only and does not constitute financial, legal or tax advice.