More than 30 Katherine businesses have endorsed a letter questioning why a private furniture company was awarded more than $400,000 in Federal Government grants to expand into the town.

The businesses say the $407,000 grant to Indigenous-owned Innovative Office Furniture through the Indigenous Advancement Strategy gives it an unfair advantage and puts it in direct competition with local companies.

The company, originally based in Darwin, has been operating out of a building at the Kalano community in Katherine.

The grant was awarded to Allan Lodge, owner and operator of Innovative Office Furniture, to expand his business into the town.

Katherine furniture companies have asked Federal Indigenous Affairs Minister Nigel Scullion to explain why the funding was awarded to the company without considering the impact on local businesses.

They fear further unannounced grants to Indigenous-backed companies in the community will make established businesses uncompetitive.

"It's been tough times down here the last few years and now we won't be able to compete," said Jeff Usher, owner of Custom Cabinets Katherine.

"We've operated here for 22 years and sponsor local sports teams and community groups. There has been no community consultation [about the grant] or the effect it will have on businesses."

Funding will have 'significant implications', traders say

Mr Usher told ABC Radio he had lost one Indigenous employee to the new company.

He is concerned that his business will miss out on Federal Government and NT Government contracts, because they will not be able to satisfy the Indigenous employment weighting for government tenders.

"Our main concern therefore, is that this will have significant implications on existing cabinet makers and furniture retailers by way of lost contracts, potential loss of staff and loss of market share," Mr Usher wrote to Senator Scullion.

"These are long-term businesses that continually and generously support the local community by way of sponsorships and donations."

"Additionally, you have no evidence that this newly created, government-funded business … will not be a short-term failure — hence a waste of taxpayer's money."

Katherine traders fear the grants will make them uncompetitive. ( ABC News: Mitchell Woolnough )

'We are not new to Katherine'

Innovative Office Furniture owner Allan Lodge said as an Indigenous business, "we want to build pathways for other Indigenous people by way of traineeships, apprenticeships and general upskilling".

He did not offer further detail on how the training and apprenticeships would be run.

"It is true that we have received some financial support from the Federal Government, but this is only a small part in comparison to the time, effort and money we have invested, and continue to invest, in this business and in Katherine," he said in a statement on Tuesday.

He said his business had been operating in Katherine and the surrounding regional and remote areas since 2013 "so this is nothing new and we are not new to Katherine".

He said he had employed and continued to employ "local electrical companies, painters, builders, air‑conditioning contractors, and numerous other tradesmen and labourers".

A spokesperson for Minister Scullion said in a statement on Tuesday that any Katherine small business was able to apply for grants and assistance in marketing and sales, importing and exporting, purchasing equipment and employing people through the Department of Industry, Science and Innovation.

"The investment in Innovative Office Furniture was from the Indigenous Entrepreneurs Fund," the spokesperson said, and added it allowed Indigenous businesses to make applications for plant and equipment to help grow the sector to parity levels.

"All appropriate checks were undertaken with this application in line with the Indigenous Advancement Strategy," they said.

Minister Scullion has not yet responded to the businesses regarding their concerns.

'It's not a level playing field'

Whitehouse Furnishers business manager John Dobell, whose company recently added a new $4 million furniture showroom in Katherine, also sent a letter to Mr Scullion outlining his company's concerns over the grant.

"We had a lot of struggles achieving what we achieved with no support whatsoever [from the Government]," he said.

"It's not a level playing field when the Government hands out grants like this. There's the potential for damage to our business to happen."

Mr Dobell said the IAS grant money could have been used in a more productive way to achieve Indigenous training and employment objectives.

"Surely it would have been more productive to divide it up among established businesses for training and employment, creating better outcomes for everybody," he said.

The grants are administered through the Federal Government's Indigenous Advancement Strategy which was allocated $4.9 billion over four years to 2018-19.