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Some 15 years ago grants were to the forefront of all economic development programmes, especially to support business start ups.

That position changed as ‘sustainability’ became the objective of business support.  Loans and equity investment came to the fore, on the basis that a small business that was reliant on grant funding was not viable in the long term. Substantial public sector investment was channelled through new sources of finance, both loan and equity.

I have spotted a strange trend recently.  It seems that the economic downturn has led the public sector to reverse previous policies and move back to grant giving.

Funds are not only are being channelled to small businesses through the banks and alternative providers of loans and equity support, they are also being provided directly to businesses.  Why?  It seems the aim is to buy job creation and preservation.  This actually applies to not only to small businesses but also, through the Regional Growth Fund, to larger businesses.

In the past the first step would have been to establish whether or not a business actually needed a grant: was there a gap in the options available to meet their requirement?  Now it appears that the public sector is happy to offer money in return for a promise that jobs will be created or preserved.

Let’s just hope that this new tactic does not backfire, with businesses reverting to the norm when grants are around in abundance.  Typically they delay seeking investment for planned growth in the expectation that another new grant scheme is just round the corner.  Surely that is not the way to encourage the development of a resilient economy?

November 30, 2012 2:49 pm

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