Thousands of small businesses and startups that applied for the federal government’s Export Market Development Grants (EMDGs) have likely found themselves out of pocket, after unprecedented demand for the scheme stretched the budget thin.
Businesses that have applied for ‘tier three’ grant funding (aimed at exporters making a strategic shift) were previously eligible for grant funding of up to $450,000.
The maximum funding for this tier has now reportedly been cut by 77% to $105,000.
Tier two grants — for exporters planning to expand marketing activities — have reportedly been cut by 71%.
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Tier one grants — for businesses new to exporting — will be down by 62%.
Previously, businesses could apply for a maximum of $770,000 in grant funding over eight years. It is unclear whether this threshold remains.
In the October 2020 Federal Budget, the government announced an additional $230 million in funding for the scheme, and an overhaul for the 2021-22 financial year that would see it change from a reimbursement program to a grants scheme.
Rather than submitting a claim for 50% of their expenses, businesses now have to calculate — and start spending — their anticipated expenses and apply in advance.
At the same time, a record 5,300 businesses applied for funding under the scheme in 2021.
The total value of grants issued under the scheme is fixed by Austrade, with all eligible businesses receiving a payment. This led to a shortfall in the amount of money available, compared to successful applicants.
On December 23, 2021, the Department of Foreign Affairs and Trade (DFAT) quietly announced an additional $80 million in funding for the scheme over four years, supposedly due to increased demand.
Buried in the second-last line of the announcement, however, was the line that unveils the crux of the issue.
“The much higher number of grant recipients will see the fixed funding pool spread across more businesses,” the statement says.
At the time of writing, neither Austrade nor DFAT has responded to a request for comment.
“Huge ramifications” for SMEs and startups
Janine Owen, founder and head of impact strategy at grants management agency Grant’d, tells SmartCompany she would assume “the vast majority” of the 5,300 applicants would have been affected by the unexpected change to the EMDG scheme.
These export grants are calculated on a financial year basis, she notes. More than half way through, most businesses will have been executing on their plans under the expectation they would receive the amount of funding they applied for.
This is something they never could have planned for, she adds.
“It has huge ramifications for the businesses in terms of their working capital.”
Businesses will likely have to find alternative funding to make up the shortfall, or pull back on other areas of the business.
The grants were available to businesses with less than $20 million in annual revenue, Owen notes.
It’s small businesses and startups that will be affected — and that’s after two years of struggling with the COVID-19 pandemic.
“It’s going to have a massive blow on those businesses, because those funds have to be found from somewhere.”
Exporting important to Aussie SMEs
The EMDG scheme is becoming increasingly important for Aussie businesses, especially as more look to overseas customers following the pandemic.
Research from Amazon Australia recently found that a third of Aussie SMEs plan to expand internationally within the next two years.
Of those that already sell overseas, two thirds have seen an increase in international sales over the past 18 months, and 80% are planning on expanding into additional regions in the next 12 months.
In its pre-budget submission for 20220, the Australian Retailers Association called for a reinstatement of the original EMDG program, bringing it in line with the $200 million in funding that was provided to Aussie businesses at the beginning of the pandemic.
The Australian Chamber of Commerce and Industry has also called for the grants to be extended to businesses that have previously reached the maximum eight-grant limit.
This is particularly pertinent to tourism businesses that “will need to rebuild trust and confidence in key as well as new and emerging markets”, a statement from the Chamber said.