Executive Summary

• Research and Development funding increases during recessions as governments try to innovate their way to economic growth
• Governments focus R&D funding on small businesses and startups as they are often dynamic and willing to spearhead innovation
• R&D grants programs during recessions tend to support Clean Technology and sustainable infrastructure projects

The economic crash in 2008 sent small businesses into a tailspin. They were disproportionately affected by the crisis. Long considered the backbone of the economy,” governments in North America needed to find ways to support and generate new economic development through small businesses. Grant funding has become one of the more effective methods to keep these companies operating through difficult economic periods, thereby working to maintain a baseline of activity that can rebuild economies. This article will cover how Research and Development grant funding, in particular, helps small businesses lead economies out of recessionary periods.

Research and Development Funding After a Crash

In the years after 2008, government funding for Research & Development grants for small businesses rose dramatically in Canada and the United States, and there has been steady growth for this type of funding ever since. Similarly, the 2021 Canadian Federal Budget put forth an emphasis on support for businesses adopting new technologies and developing new products or infrastructure. In both cases when the Canadian government faced economic challenges, they turned to investment in innovation as a means to lead the economy out of a recession or downturn, particularly relying on dynamic and ready-to-pioneer small businesses to lead the way. 

There are a few reasons why R&D funding is a key strategy for pulling an economy out of recession. Due to the shortage of capital and resources that circulates during a recession–particularly as inflation rises–both the government and economic stakeholders are pushed to do more with less. Creating new products from underutilized resources, finding alternative solutions that take advantage of market potentials, and carving pathways toward new industries are all developmental activities that can stimulate economic growth and create distribution cycles for newly generated capital. Funding R&D activities thus helps to spur innovation which manifests in new economic opportunities. 

R&D Grants and Small Businesses

One way that governments invest in innovation during economic recessions is through Research and Development (R&D) grant programs. In 2008 and 2021, the Canadian government relied on R&D grants to help businesses develop new products, transition to new technologies, and generate activity in industries with high growth potential. Moreover, in the current economic downturn, companies can expect to see opportunities for financial aid in the form of R&D grants as well as project-specific subsidies and loan programs begin to pop up. 

R&D grants and other financial support programs are a great way for governments to ensure that companies spend time on innovation during a recession. When a provincial or federal government is willing to cover costs associated with these types of projects, it means that small businesses can afford to invest their time and money. Statistics Canada reports show that during the post-crash period in 2009, grants and training programs were listed as the most crucial and useful government support mechanism for more than 55% of small businesses trying to innovate. 

Science and Technology R&D Grants

In both post-2008 and 2021, governments put emphasis on Science and Technology specific R&D grants for small businesses. These are programs that support the transition to new infrastructures like CleanTech or digital adoption. Incentivizing innovation in these ways helps the government generate economic activity while effectively solving problems with negative externalities, such as climate change. The flexibility and dynamism of small businesses and startups allow these types of companies to be the vanguards for new industries.  

Developmental training and hiring grant programs are also effective means for small businesses to innovate and adopt new technology. Just as the government is trying to get businesses to spend money during a recession, it is also trying to get consumers to spend money. In the 2021 Budget, the Government of Canada committed itself to creating “training and work opportunities for as many as 28,000 young people to help small and medium-sized businesses across Canada adopt new technology.” This is an example of how economic development can be generated by small businesses that are oriented towards new and innovative industries while taking the financial pressure of hiring or training off those businesses in difficult times. 

If you are interested to learn more about CleanTech grants, and how you can access them during a period when they are made even more readily available, check out our Grants for Clean Technology Guidebook!