WHEN the federal Government announced on budget night that it had decided to close its Commercial Ready innovation grants program for companies seeking funds for expansion, Robi Karp was understandably shocked.

As chief executive of the Sydney-based embedded graphics and multimedia company Fluffy Spider Technologies, Karp and his team had spent months getting letters of intent from the world's largest manufacturers of electronic chips and components, including Toshiba and VeriFone, to supply to them FST's world-leading technology.

With the contracts based on FST's ability to deliver its product, the company was relying on about $500,000 of Commercial Ready funding to begin with so it could take its first export steps.

So the Government's sudden move to axe the AusIndustry Commercial Ready program, through which it had committed funds to small and medium-sized enterprises, meant Karp had to scramble quickly to secure alternative private funding.

"It's pretty disappointing," Karp says. "For businesses like us, we've put in a tremendous amount of work to prepare an application such as this -- in our case, six months. To axe the grant scheme overnight makes it very difficult for businesses to plan.

"I need to employ people, to organise contractors. There are many hundreds of thousands of dollars of work that we need to now look at alternative funding schemes for, and maybe offshoring it.

"We now have a reputation that's dangling with these multinationals -- we must deliver on our promise and we will. The important thing is that Commercial Ready was never going to be a make-or-break for us, but it's a timing thing, and you don't get second shots at these things."

A spokesman for Innovation, Industry, Science & Research Minister Kim Carr said the move was "a very tough decision".

"The Government has commissioned a comprehensive review of the National Innovation System, chaired by Dr Terry Cutler, which will provide a green paper report by 31 July," he said.

"The Government will be responding to the review with a White Paper by the end of the year. In the meantime, it is important to note that all existing commitments under the program will be met -- worth about $200 million over four years.

"It is also important to remember that almost three quarters of the savings from Commercial Ready in 2008-09 had already been earmarked in the election policy Clean Energy Plan to tackle climate change to offset the Government's new $240 million Clean Business Australia package.

"The Rudd Labor Government will also continue to support Australia's innovative businesses through the R&D tax concessions, the tax offset, the COMET program, and a range of venture capital measures -- as well as new initiatives such as Enterprise Connect (including researchers in business) and the Green Car Innovation Fund."

Ivan Kaye, managing director of Business Strategies International, which provides a range of support to technology companies including advice on research and development (R&D) incentives and export grants, as well as access to funding, says he believes the Government has made the correct decision.

"It is very difficult, in my view, to get Commercial Ready funding," he says.

"The guys who were getting Commercial Ready were the guys with matching funds. And the reality is that those with the matching funding were already being backed by the venture-capital community and the high-net-worth investors. If the product was good the VCs would back them, whether or not the Commercial Ready grant came in or not.

"The companies who were struggling to raise the matching funds couldn't actually get it at all, and when you actually decided to access a Commercial Ready grant it would take six to nine months to go through."

Kaye says the Government's R&D tax concessions, providing a cash rebate to companies with assessed tax losses turning over less than $5 million a year, is a much simpler program.

"That's a fantastic scheme and well used, and it's not about picking winners," he says.

"It's about if someone spends the money and they are doing R&D, and it's assessed as R&D, they will get their tax concession."

Kaye says he has no doubt the Government will make other grants available, but instead of them being a generic Commercial Ready scheme it will focus on areas where it believes Australia has a competitive advantage.

"We're also delighted to hear the Government is expanding the Export Market Development Grant program and we believe there should be more programs that will assist innovation and Australian innovative companies to commercialise their products in international markets."